Mortgage glossary
Discount points
Definition: Discount points are optional upfront fees paid at closing to lower a mortgage's interest rate for the life of the loan, with one point typically equal to 1% of the loan amount.
Paying points is a permanent buydown: you spend cash now in exchange for a lower rate and payment over time. The amount of rate reduction per point varies by lender and market conditions. Points appear on the Loan Estimate and are reflected in the APR.
Whether points make sense depends on how long you keep the loan. Divide the cost of the points by the monthly savings to find the break-even month. If you expect to sell or refinance before then, points usually do not pay off. Seller credits can sometimes be used to pay points.
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Reviewed by Kyle Richardson, NMLS #863464. General information, not advice for your specific situation. All glossary terms
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