November 4, 2022
Mortgage points allow you to lock in a lower interest rate during the home buying process and pay less in interest on your loan. Before you decide to purchase points, make sure buying points makes sense for your situation.
A mortgage point – sometimes called a discount point – is a fee you pay to lower your interest rate on your home purchase or refinance.
One discount point costs 1% of your loan amount. For example, if you take out a loan for $100,000, then one point will cost you $1,000.
Points are paid at closing, which will be in addition to other closing costs.
For each discount point you buy, your interest rate will be reduced by a set percentage point. The per-point discount you’ll receive varies by lender, but you can generally expect to get a .25% interest rate reduction for each point you buy. Most lenders will cap the number of points you can buy.
Example: Loan Amount = $200,000 at 5.125% (Lender offers 4.75% if you purchase 1.75 points, which will cost $3,500.