What Are Mortgage Discount Points?

Mortgage points, also known as discount points, are payments paid directly to the lender (often a bank) in return for a lower interest rate. This is sometimes referred to as “buying down the rate.”

In essence, you pay interest upfront in return for a cheaper interest rate throughout the life of your loan. Each point you purchase costs 1% of your entire loan amount.

Purchasing points to reduce your monthly mortgage payments may make sense if you choose a fixed-rate mortgage and intend to keep the house after the break-even period. The break-even period is the amount of time required to recuperate the cost of purchasing points.