Discount points are fees a borrower can pay directly to the lender at closing in exchange for a lower interest rate on their mortgage. One point typically equals 1% of the total loan amount. By paying these upfront, buyers can “buy down” their interest rate, which reduces monthly mortgage payments and saves money over the long term.
The decision to purchase discount points depends on a borrower’s financial situation and how long they plan to stay in the property. If the buyer remains in the home long enough to recoup the upfront cost through lower monthly payments, discount points can be a smart investment.
Why It Matters
Paying discount points can:
- Lower monthly mortgage payments and make budgeting easier
- Reduce total interest costs over the life of the loan
- Benefit long-term homeowners who plan to stay in their property for many years
However, for buyers who might sell or refinance soon, paying for discount points may not provide enough benefit to outweigh the upfront expense.
Example
Xavier decided to purchase 2 discount points to reduce the interest rate on his mortgage from 6% to 5.5%. While this required a larger payment at closing, his monthly mortgage bill dropped significantly, saving him thousands of dollars over the life of the loan.
Disclaimer: Informational Purposes Only
The content provided in this blog is for informational purposes only and is intended to offer general insights into real estate and legal topics. It is not directed at any specific individual or entity and should not be considered professional advice.
Hassaan Alam, The Alam Group, and the author of this blog do not provide legal, financial, or tax advice. Readers should consult with qualified professionals, such as attorneys, accountants, or tax advisors, before making any real estate, investment, or financial decisions.
While we strive to provide accurate and up-to-date information, we do not guarantee its completeness or reliability. Any reliance on this content is at your own discretion and risk.
