Discount Points
Direct definition
Optional upfront fees paid to the lender to lower your interest rate — one point equals 1% of the loan amount.
Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content
Plain-English explanation
Buying points trades cash today for a lower rate over the loan's life. Break-even is the number of months of savings needed to recoup the cost.
Why it matters
Points can save real money if you'll keep the loan long enough; they're a poor value if you plan to refinance or sell soon.
Where you may see it
- Loan Estimate
- Closing Disclosure
- Rate sheets
A real-world example
Paying one point ($4,000) on a $400,000 loan may lower the rate by 0.25%, saving about $60/month — break-even around year six.
Educational and illustrative only
A common misunderstanding
Points are not a fee you're required to pay — they're optional and only worthwhile if you keep the loan long enough to recoup the cost.
Ask Vabasso AI
This glossary provides general educational information. Mortgage terminology, qualification methods, forms, timelines, fees, program rules, and legal meanings may vary by lender, investor, loan program, property, occupancy, state, and transaction. Definitions do not represent loan approval, legal advice, tax advice, or a commitment to lend.
- Author
- Vabasso Mortgage Editorial Team
- Reviewed by
- Vabasso Mortgage Licensed Advisory Team
- Last reviewed
- July 30, 2026