What are mortgage points and should I pay them?

First-Time Homebuyer

Points are additional funds you can pay at closing to lower your interest rate. But does this strategy always make sense?

Mortgage points, also known as discount points (or just “points”), are additional funds you can pay at closing to lower your interest rate. While a lower interest rate sounds good, make sure you have all the necessary information before making this decision.

What are discount points and how do they work?

A discount point is a fee paid to the mortgage lender at closing in exchange for a lower interest rate. Generally, one point costs one percent of your total mortgage amount and reduces your interest rate roughly one-quarter of a percent.1

Example: You have a $200,000 mortgage.

You pay one discount point ($2,000).

Your interest rate is reduced by 0.25%.

What should I consider?

How long you’ll own the property and how much you can pay monthly.

Even if buying points makes sense over the life of the loan, it requires extra cash up front. Do you have that extra cash available? Do you expect to sell the home after only a few years?

If you think you may relocate in a few years, you’re unlikely to save enough on monthly payments to make back what you spend on points. Some buyers actually consider increasing their interest rate to reduce the amount of cash needed at closing.

Planning to stay in the home for a while? If money’s tight, you could reduce the amount of cash needed at closing in exchange for a slightly higher interest rate and monthly payment.

Some homebuyers—especially first-time homebuyers—face additional expenses associated with moving. New furniture. Relocating costs. Keeping that cash available now may be more important to you than paying a small additional amount each month.

What else should I keep in mind as I begin the loan process?

Every lender is priced a little bit differently. If you see a rate that’s significantly lower than others, make sure lender fees or points aren’t built into that rate in another way.

And ask about the annual percentage rate (APR). The APR reflects not just the interest rate, but also other fees and costs incurred in obtaining the loan. Read through the entire rate sheet to understand everything included—and let us know if you have any questions.

Can you help me decide what's best?


We’ll guide you to the best mortgage option based on your goals, lifestyle, and budget priorities. Together, we’ll look at the whole picture—so you’ll feel confident in your decisions.