What Is Discount Points?

Discount points are upfront fees you pay at closing to buy down your mortgage interest rate, with each point costing 1% of the loan amount and typically lowering your rate by about 0.25%. Paying points is essentially prepaying interest to secure a lower monthly payment for the life of the loan. Points make the most financial sense when you plan to stay in the home long enough to recoup the upfront cost through monthly savings.

On a $350,000 loan at 6.75%, one discount point would cost $3,500 and could reduce your rate to 6.50%. That drops your monthly principal-and-interest payment from $2,270 to $2,212—a savings of $58 per month. Your break-even point would be about 60 months ($3,500 ÷ $58), so if you keep the loan at least 5 years, buying the point saves you money.

Key Facts

• Cost per point: 1% of the loan amount
• Rate reduction per point: Approximately 0.25% (varies by lender and market)
• Break-even period: Typically 4–7 years depending on loan size and rate reduction
• Tax deductibility: Generally deductible as prepaid mortgage interest in the year paid on a purchase loan

Frequently Asked Questions

How many discount points can you buy?

Most lenders allow you to purchase up to 3–4 points, though buying more than 2 is uncommon. Each additional point yields diminishing returns, so calculate the break-even period carefully before paying for multiple points.

Are discount points worth it if you might refinance?

If you plan to refinance within a few years, buying points is usually not worth it because you will not hold the loan long enough to reach the break-even point. Points work best when you expect to keep the mortgage for 7 years or more.