Mortgage Points (Discount Points)
Mortgage points are upfront fees paid to a lender to reduce (buy down) the interest rate on a loan. One point equals 1% of the loan amount. Paying points makes sense if you plan to stay in the home long enough to recoup the upfront cost.
$4,000 in points (1 point on $400,000) saves $65/month → break-even at 61 months (5.1 years).
Each discount point typically lowers the rate by 0.125–0.25%, though the exact reduction varies by lender and market conditions. Paying points is essentially pre-paying interest — you spend money now to save money each month.
The key question is break-even point: how many months before the monthly savings equal the upfront cost? If points cost $4,000 and save $80/month, break-even is 50 months (4.2 years). If you sell or refinance before then, you lose money.
Not all "points" are discount points. Origination points are lender fees, not rate buydowns. Always ask your lender to clarify whether points are buying down your rate or covering origination fees.
Put this into practice with our free calculator:
Open calculator →Related terms
- Closing Costs
- Closing costs are fees paid at the end of a real estate transaction to complete the mortgage. They typically range from 2–5% of the loan amount and include lender fees, title insurance, appraisal, and prepaid items.
- Refinancing
- Refinancing replaces an existing loan with a new one, typically at a lower interest rate, different term, or both. The goal is usually to reduce monthly payments or total interest paid.
- Break-Even Point
- The break-even point is the moment at which total revenue or savings equals total costs — beyond which an action becomes profitable. In refinancing, it's when cumulative savings exceed closing costs.
- Interest Rate
- An interest rate is the percentage of the principal charged by a lender to a borrower for the use of money, or paid by a bank on deposited funds. It is quoted as an annual percentage.