Discount points
Also called: points, buying down the rate, mortgage points
An optional upfront fee paid to the lender in exchange for a permanently lower interest rate.
One point is one percent of the loan amount, paid at closing, in exchange for a lower note rate for the life of the loan. Points are optional, and how much rate each point buys varies by lender and by day.
The only honest way to evaluate points is a break-even: divide what the points cost by the monthly payment they save, and compare that number of months against how long you realistically expect to keep the loan.
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Related terms
- APR (Annual Percentage Rate)The yearly cost of a loan expressed as a percentage, including the interest rate plus most lender fees.
- Interest rate (note rate)The percentage charged on your loan balance, the number your principal and interest payment is calculated from.
- Rate lockA lender’s commitment to hold a quoted interest rate for a set number of days while your loan is processed.
- Temporary buydownA prepaid subsidy that reduces the payment for the first year or two, after which the payment rises to the note rate.
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