Points · OCT 2026
What's a discount point, and when is paying one worth it?
A discount point is money you pay at closing for a lower rate. Here's how points work, how to spot them in a quote, and when they pay off.
Reviewed by Trey Bolen, NMLS #937979
A rate that looks lower than everyone else's usually has a reason, and the most common one is discount points. They're a real cost that shows up at closing, and they're easy to miss when you're comparing rates on a screen.
Points aren't good or bad. They're a trade: cash now for a smaller payment later. Here's how to tell whether that trade works for you.
What is a discount point?
A discount point is a fee you pay at closing to lower your mortgage rate. One point costs 1% of your loan amount. You can usually buy part of a point, too, like half a point.
Points are prepaid interest. You pay some of the loan's interest up front, and in return the lender charges a lower rate for as long as you have the loan. How much one point lowers your rate isn't fixed. It varies by lender, by loan type and from day to day.
Why do so many low rates include points?
Because a lower rate gets attention, and points are how a lender gets there. An advertised rate often assumes you'll pay one or more points at closing, along with a high credit score and a large down payment.
The points show up later, on your Loan Estimate, under origination charges. That's why a quote with a low rate can cost more at closing than a quote with a slightly higher rate and no points. Lender fees and points are the part of the cost that differs most from one lender to the next, so check them every time. Closing costs covers the rest of what's on the Loan Estimate.
How do you compare quotes that have different points?
Put them on the same footing. Ask each lender for the rate with no points, or with the same number of points, so you're comparing like with like.
Then look at the APR. It folds the rate and the lender's fees, including points, into one number, which makes points easier to spot. A big gap between the rate and the APR usually means points or high fees. Rate vs. APR explains how to read that gap.
When is paying for points worth it?
Points are worth it when you'll keep the loan long enough for the lower payment to earn back what you paid. That's the break-even point.
To find it, divide what the points cost by how much they lower your monthly payment. The answer is the number of months it takes to come out ahead. If you expect to keep the loan well past that, points can save you money. If you might sell or refinance before then, you'll likely lose money on them.
That's the catch when rates are high. If rates fall and you refinance in a few years, the points you paid go away with the old loan. Paying points makes the most sense when you plan to stay in the home a long time and don't expect to refinance.
What is a lender credit?
A lender credit is the opposite of a point. You take a slightly higher rate, and the lender pays part of your closing costs in return.
It can make sense when cash is tight at closing, or when you expect to sell or refinance within a few years, because you don't pay much up front for a rate you won't keep long. Your Mortgage Advisor can show you the same loan with points, with no points, and with a lender credit side by side.
Can the seller pay for points?
Yes. A seller credit can be used to pay discount points, as long as the total stays within your loan program's limit on seller credits. When a home has been on the market for a while, asking the seller to buy down your rate can be worth more to you than a lower price. Seller credits explains how to ask for one.
Points or a temporary buydown: which helps more?
It depends on how long you'll keep the loan. Points lower your rate for the life of the loan. A temporary buydown lowers your payment for only the first year or two, then the payment goes up to the full rate.
A temporary buydown fits buyers who want a smaller payment early on, like those expecting their income to rise or hoping to refinance if rates fall. Points fit buyers who plan to keep the loan for many years. When the seller is paying, it's worth asking your Mortgage Advisor to lay out both, since the same seller credit can go either way.
Are discount points tax-deductible?
Often, yes. Points paid on a loan to buy your main home can usually be deducted, and points on a refinance are usually deducted over the life of the loan. The rules have conditions, so check with a tax professional about your own situation.
Quick answers
- How much does one discount point cost?
- One point costs 1% of your loan amount, paid at closing.
- How much does a point lower your rate?
- It varies by lender, by loan type and from day to day. Ask for the rate with and without points to see the difference on your loan.
- Is it worth paying points on a mortgage?
- It is if you keep the loan past the break-even point: what the points cost divided by the monthly savings. If you might refinance or sell sooner, it usually isn't.
- What's the difference between points and a temporary buydown?
- Points lower your rate for the life of the loan. A temporary buydown lowers your payment for only the first year or two.
- Why does one lender's rate look so much lower than another's?
- Often because it includes discount points. Compare the points and origination charges on each Loan Estimate, not just the rate.
Want to see how this plays out for your loan? See today’s rate for your scenario.