Discount Points

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Discount points are optional upfront fees you pay your lender at closing in exchange for a lower interest rate on your mortgage. Each point typically costs one percent of the loan amount.

For example, on a $250,000 loan, one point costs $2,500 and might lower your rate by roughly a quarter of a percent, though the exact reduction varies by lender. Paying points makes sense when you plan to keep the loan long enough for the monthly savings to outweigh the upfront cost, often called the break-even point.

If you expect to sell or refinance before reaching break-even, points may not pay off. Compare the trade-off with our mortgage points calculator.

Related terms: Annual Percentage Rate (APR), Closing Costs