Points

Discount points are upfront fees you pay at closing to permanently reduce your mortgage interest rate — basically, you’re prepaying interest in exchange for a lower monthly payment. One point equals 1% of your loan amount and typically shaves 0.25% off your rate, though that ratio shifts with market conditions.

How Points Work

Buying points is straightforward math. You hand the lender money at closing, and they lower your rate for the entire loan term. The lender gets guaranteed profit upfront. You get savings every single month.

The real question is whether those savings outweigh the upfront cost. That depends entirely on how long you keep the loan.

Dollar Example

You’re borrowing $350,000 at 7.00% on a 30-year fixed. One discount point costs $3,500 (1% of $350,000) and drops your rate to 6.75%. Your monthly payment falls from $2,329 to $2,270 — saving $59/month. To recoup that $3,500, you need about 59 months, or just under 5 years. Stay longer and the point pays off. Leave sooner and you lost money on it.

Watch Out

Some lenders bundle origination fees and call them “points” on your Loan Estimate. Origination points are just lender fees — they don’t lower your rate. Make sure you’re looking at discount points specifically. The Loan Estimate separates them, but marketing materials often blur the line.

If you plan to refinance or sell within 3-4 years, points rarely make financial sense. You won’t hold the loan long enough to hit the break-even point.

Frequently Asked Questions

Are mortgage points tax-deductible?

Yes, on a purchase loan. The IRS lets you deduct discount points in the year you buy the home, as long as it’s your primary residence and the points are within typical market range. On a refinance, you deduct them over the loan’s life instead. Check with a tax professional — but for most buyers, this sweetens the deal on purchasing points. Use our loan comparison tool to test whether buying points beats your no-point option.