What is Discount Points?
Discount points are an optional, upfront fee paid at closing to “buy down” the loan’s interest rate. One point usually costs 1% of the loan amount and lowers the rate by a set fraction. Paying points makes sense if you keep the loan long enough for the monthly savings to outweigh the upfront cost.
Example: On a $400,000 loan, paying one point ($4,000) up front lowers the rate slightly, saving money each month if the borrower keeps the loan for several years.