Mortgage Glossary
Points / Discount Points
Upfront fees you pay to buy down your interest rate. One point equals 1% of the loan amount and typically lowers your rate by 0.25%.
What It Means
Mortgage points (also called discount points) are optional upfront payments that permanently reduce your interest rate.
- 1 point = 1% of the loan amount
- Each point typically reduces your rate by about 0.25% (though this varies)
Paying points makes sense if you plan to stay in the home long enough to recoup the upfront cost through lower monthly payments — this is called the break-even point.
Not to be confused with origination points, which are lender fees, not rate reductions.
Real-World Example
"On a $300,000 loan at 7.0%, paying 2 points ($6,000) upfront might reduce your rate to 6.5% — saving $100/month. You'd break even in 60 months (5 years). If you plan to stay longer, it pays off."
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Definitions are for educational purposes only and do not constitute financial or legal advice.