Mortgage points
Also called: discount points
Mortgage points, also called discount points, are a fee paid at closing in exchange for a lower interest rate. One point costs 1% of the loan amount, and how much it lowers the rate depends on the lender, the loan and the market.
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How it works
Points let you trade a higher upfront cost for a lower monthly payment. Half a point costs 0.5% of the loan amount. Because the rate reduction a point buys is not fixed, the useful comparison is the same loan quoted with and without points. Points are listed on page 2, section A, of both the Loan Estimate and the Closing Disclosure.
Whether points pay off depends mostly on how long you keep the loan. A rough break-even period is the cost of the points divided by the monthly savings. Selling or refinancing before then means the lower rate saved less than you paid for it. Points can suit borrowers who expect to keep a loan for a long time and have cash to spare, and fit less well for those who may move or refinance soon.
Lender credits work the other way: you accept a higher interest rate and the lender covers some of your closing costs, so you pay less upfront but more over time. Running the numbers for your shortest, longest and most likely time in the loan shows how each choice holds up.
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Sources and further reading
Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.