Rates & interest
Discount points
Upfront fees paid to the lender at closing to lower your interest rate, where one point equals 1% of the loan amount and typically cuts the rate by about a quarter percent.
What does discount points mean?
Buying points means paying interest in advance to secure a lower rate for the life of the loan. Each point costs 1% of the loan and usually shaves roughly 0.25% off the rate.
Whether it pays comes down to your break-even: divide the point cost by the monthly savings to find how many months until you recoup it. Points make sense if you'll keep the loan well past that break-even; they're wasted money if you sell or refinance sooner.
Always compare a with-points and no-points quote side by side.
A Michigan example
On a $285,000 loan, one point costs about $2,850 and might shave roughly a quarter percent off the rate. If that trims the payment by a modest amount each month, dividing the cost by the savings gives your break-even in months.
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