Costs
Points (Discount Points)
An upfront fee paid to the lender at closing to lower your mortgage interest rate, where one point equals 1% of the loan amount. On a $300,000 loan, one point costs $3,000 and typically reduces your rate by about 0.25%. Buying points makes sense if you plan to keep the loan long enough to recoup the upfront cost through lower monthly payments — usually five to seven years. Your Loan Estimate will show the cost and rate impact of any points.
Why It Matters
Points (Discount Points) is one of the expenses that can catch homebuyers off guard if they don't budget for it early. Total homebuying costs go beyond the purchase price — closing costs, prepaid items, and ongoing expenses like points (discount points) can add thousands to your out-of-pocket costs.
The cost of points (discount points) varies depending on your location, loan type, and specific transaction. Shopping around and negotiating can often reduce these costs significantly. Always ask for a detailed line-item breakdown from your lender or service provider.
Real-World Example
On a $350,000 home purchase, points (discount points) could range from a few hundred to several thousand dollars depending on your state and lender. Get at least 3 quotes to ensure you're paying a competitive rate for this service.
Pro Tip
Don't assume all costs are non-negotiable. Many fees related to points (discount points) can be reduced by shopping service providers independently rather than using your lender's default recommendations.