Mortgage points are fees that may affect the interest rate and upfront cost of a loan. Understanding points can help borrowers compare loan options more clearly.
What are discount points?
Discount points are optional upfront costs a borrower may pay to reduce the interest rate. One point typically equals 1% of the loan amount, though the rate impact can vary.
What are lender credits?
Lender credits work in the opposite direction. A borrower may accept a higher interest rate in exchange for reduced upfront closing costs. This can help reduce cash needed at closing, but may increase monthly payment or long-term interest.
Why points matter
- They affect upfront cost
- They may reduce or increase monthly payment
- They influence APR
- They can affect break-even timing
- They help borrowers compare short-term and long-term costs
Want to compare payment and cost tradeoffs?
Break-even point
The break-even point helps estimate how long it may take for monthly savings from a lower rate to recover the upfront cost of points. If you plan to keep the loan for a long time, paying points may be worth evaluating. If you expect to sell or refinance soon, it may not make sense.
Questions to ask
- How much does each point cost?
- How much does the rate change?
- What is the monthly payment difference?
- How long will I keep the loan?
- What is the break-even point?
- Are lender credits available?