What are mortgage points and should I pay them?
Compare an upfront cost with a potential lower interest rate over your expected timeline.
Mortgage discount points are an upfront charge paid in connection with a mortgage, often to obtain a lower interest rate.
One point equals 1% of the loan amount, but one point does not guarantee a fixed amount of rate reduction.
Whether points make sense depends on the specific offer, available cash, payment difference and how long you expect to keep the mortgage.
Points change the upfront-versus-later tradeoff
Paying points increases cash paid at closing and may reduce interest cost or the monthly principal-and-interest payment. The actual pricing comes from the lender’s offer.
Think about break-even
A simple comparison divides the added upfront cost by the monthly savings to estimate how long it takes to recover the cost. That estimate should also consider plans to sell, refinance or pay off the loan.
Do not compare rates alone
Compare offers using the same loan type, amount and lock assumptions. Review points, lender credits, other lender charges, APR, payment and cash to close on the Loan Estimate.
Questions worth asking
- What rate is available with zero points?
- What does each point cost in dollars?
- How much does the payment change?
- What happens if I sell or refinance before break-even?
Compare points with the complete offer
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