Discount Points

Discount points are an upfront fee you pay the lender at closing in exchange for a lower interest rate on your mortgage. One point equals one percent of your loan amount, so on a 300,000 dollar loan a single point costs 3,000 dollars. In return, the lender reduces your rate, which lowers your monthly payment for the life of the loan. Buying points can make sense if you plan to keep the home and the loan long enough for the monthly savings to outweigh the upfront cost, often called the break-even point. If you might sell or refinance sooner, paying points may not pay off. The exact rate reduction per point varies by lender and market conditions, so ask for a written comparison. Points are separate from a rate lock, which simply holds a quoted rate in place.