What are discount points?
Answered by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
Discount points are an upfront fee you pay to buy down your interest rate. One point equals 1% of the loan amount and typically lowers the rate by about 0.25%.
Points make sense if you'll keep the loan long enough to recoup the cost through lower payments. We'll calculate your break-even so you only pay points when the math clearly favors it.
Paying to lower your rate
Discount points are an upfront fee you pay to lower your interest rate. One point costs 1% of your loan amount and usually drops your rate by about a quarter percent.
On a $300,000 loan, one point costs $3,000 and shaves your rate, which lowers your monthly payment for the life of the loan.
When points pay off
Points make sense when you plan to keep the loan long enough to recoup the upfront cost through the lower payment. That break-even point is often around five to seven years.
We calculate your break-even before you decide. Reach out and we will show whether buying points saves you money.