Mortgage Points
Optional upfront fees paid at closing to lower your interest rate, where one point costs 1 percent of the loan amount. Also called discount points.
Buying points means paying more at closing in exchange for a lower rate and a smaller monthly payment. One point equals 1 percent of the loan, so on a 300,000 dollar loan a point costs 3,000 dollars. How much rate reduction each point buys varies by lender and market conditions.
The decision turns on breakeven math: divide the upfront cost by the monthly savings to find how many months it takes to recoup the spend. Points tend to pay off only if you keep the loan well past that point, so they suit buyers planning to stay put rather than those likely to sell or refinance soon. Lender credits work in reverse, raising your rate to cover some closing costs, which can help when cash is tight. Run the numbers for your situation.
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Related terms: Annual Percentage Rate (APR) , Closing Costs
Last updated . Part of the FinExplained finance glossary .