Costs & insurance
Discount points
Definition
Discount points are upfront fees paid to a lender at closing to lower a mortgage’s interest rate. One point equals 1% of the loan amount. Whether points pay off depends on the break-even period: the upfront cost divided by the monthly saving, compared with how long the borrower expects to keep the loan.
Discount points, explained
The rate reduction per point varies by lender and market conditions, so borrowers should compare the actual pricing offered.
Points are one of the finance charges included in APR.
See discount points in a calculator
The Mortgage Points Calculator shows how this works with real numbers. See whether buying discount points to lower your rate is worth the upfront cost.
Open the Mortgage Points CalculatorRelated terms
- Annual percentage rate (APR)The annual percentage rate (APR) expresses the yearly cost of a loan including the interest rate plus certain finance charges such as points and some lender fees.
- Refinance break-even pointThe refinance break-even point is the number of months until the monthly savings from a new loan repay the cost of refinancing.
Q.01What is discount points?
Discount points are upfront fees paid to a lender at closing to lower a mortgage’s interest rate. One point equals 1% of the loan amount. Whether points pay off depends on the break-even period: the upfront cost divided by the monthly saving, compared with how long the borrower expects to keep the loan.
Q.02How much does one point cost?
One point costs 1% of the loan amount — $4,000 on a $400,000 loan.
Q.03How do I know if buying points is worth it?
Divide the cost of the points by the monthly payment saving to get the months to break even, and compare that with how long you will keep the loan.
Explain it with their numbers
Calculators turn definitions into a borrower’s real payment — and a lead for you.
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