Learn / Mortgage Points Explained
Mortgage Points Explained
A discount point is a fee you pay up front to lower your interest rate. One point costs 1% of the loan and typically lowers the rate a small amount.
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How points work
Paying points, also called buying down the rate, trades cash at closing for a lower rate and a lower monthly payment. One point equals 1% of the loan amount.
Finding your break-even
Divide the cost of the points by the monthly savings to get the number of months to break even. If you keep the loan past that point, buying down saves money. If you might sell or refinance sooner, it may not pay off.
When points make sense
Points tend to help when you plan to keep the loan a long time and have extra cash at closing. They help less if you expect to move or refinance soon.
Put it into numbers. The calculator estimates your payment and compares every loan type.
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Frequently asked questions
What is a mortgage point?
A fee equal to 1% of the loan paid at closing to lower your interest rate.
Are points worth it?
It depends on how long you keep the loan. Calculate the break-even by dividing the cost by the monthly savings.
How much does one point lower the rate?
It varies by lender and market, often around a quarter percent, but it is not fixed.
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