On this page
- What are mortgage discount points?
- How much do discount points cost, and how much do they lower your rate?
- Are mortgage discount points worth it? Find your break-even
- When mortgage discount points make sense and when they don’t
- Other ways to use the same cash
- Can you deduct mortgage discount points?
- Mortgage discount points FAQ
- Your next step: get two quotes and run the numbers
Mortgage discount points are a fee you pay the lender at closing to get a lower interest rate. One point costs 1% of the loan amount. To judge whether points are worth it, divide their cost by the monthly savings to get a break-even in months, then compare that with how long you expect to keep the loan. If you might sell or refinance before then, points rarely pay off.
What are mortgage discount points?
A discount point is prepaid interest. You pay some interest upfront, and in return the lender gives you a lower rate for the life of the loan. One point equals 1% of the loan amount, so on a $400,000 loan it costs $4,000 ($400,000 × 0.01).
Under Regulation Z, a “bona fide discount point” is 1% of the loan amount that lowers the rate “based on a calculation that is consistent with established industry practices” (12 CFR 1026.32(b)(3)). However, the rule does not set the size of the cut. Each lender sets its own pricing, and it can change with the day, the loan type, your credit score and the loan size.
Discount points vs. an origination fee
An origination fee pays the lender for making the loan, while a discount point buys a lower rate. Both appear under origination charges, so ask what each line pays for. Our guide to the loan origination fee covers that charge.
How much do discount points cost, and how much do they lower your rate?
The cost is always 1% of the loan per point. To find the rate cut, though, you need two quotes from the same lender.
Ask for quotes with and without points
Ask each lender for two Loan Estimates on the same day: one with no points and one with one point. Keep the loan type, amount, term and lock period the same. Then the gap between the two rates is what one point buys.
Say a lender quotes 7.24% with no points and 6.99% with one point. In that case, the point buys a 0.25 percentage point cut. Also repeat the request with other lenders, since one lender’s no-point rate can beat another’s rate with points. Our guide on how to compare mortgage lenders explains what else to line up.
Where mortgage discount points show on your Loan Estimate
On page 2 of the Loan Estimate, under Origination Charges, points have their own line: “__% of Loan Amount (Points).” Regulation Z requires that line to show both the percent and the dollar amount (12 CFR 1026.37(f)(1)(i)). The CFPB’s Loan Estimate explainer describes points as “an upfront fee that you pay to your lender in exchange for a lower interest rate.”
The Closing Disclosure lists the same charge and shows whether you, the seller or someone else paid it (12 CFR 1026.38(f)(1)). For the rest of the cost list, see our guide to mortgage closing costs.
Points raise the APR
Points count as a finance charge, so a quote with points shows a wider gap between the rate and the APR. Therefore, compare APRs only between quotes with the same points. Our page on the difference between interest rate and APR explains why.
Are mortgage discount points worth it? Find your break-even
The break-even is the month when your payment savings catch up with what you paid for the points.
Break-even months = cost of the points ÷ monthly principal and interest savings
A worked example
This is an illustration, not a quote. It uses these assumptions:
- Loan: $400,000, 30-year fixed rate.
- Rate with no points: 7.24%, Freddie Mac’s average 30-year fixed rate for the week of October 29, 2026.
- One point: $4,000, with two hypothetical rate cuts of 0.25 (to 6.99%) and 0.125 (to 7.115%).
- Payments: principal and interest only. Property taxes, homeowners insurance and mortgage insurance are left out, because points do not change them.
| No points | One point, 0.25 rate cut | One point, 0.125 rate cut | |
|---|---|---|---|
| Interest rate | 7.24% | 6.99% | 7.115% |
| Points cost | $0 | $4,000 | $4,000 |
| Monthly principal and interest | $2,725.99 | $2,658.52 | $2,692.17 |
| Monthly savings | None | $67.47 | $33.82 |
| Break-even | None | About 59 months | About 118 months |
In the first case, $4,000 ÷ $67.47 = 59.3 months, just under five years. In the second, the point costs the same but buys half the cut. As a result, the break-even doubles to $4,000 ÷ $33.82 = 118.3 months, nearly 10 years. In other words, the rate cut per point drives the answer.
What happens if you sell or refinance early
In the first case, a buyer who sells after four years saves 48 × $67.47 = $3,238.56. That is $761.44 less than the point cost. By contrast, keeping the loan for 10 years saves 120 × $67.47 = $8,096.40, or $4,096.40 more than the cost.
A refinance also ends the benefit, because the new loan has a new rate. So if rates drop and you refinance in year three, the point stops paying. Our guide on whether refinancing is worth it uses the same break-even math. Since no one can predict rates, plan around your own timeline.
The simple formula is a quick screen. It ignores what the $4,000 could earn in savings, and it ignores the slightly faster principal paydown at a lower rate. Above all, the savings add up only for the months you actually hold the loan.
When mortgage discount points make sense and when they don’t
Each item below moves the math one way or the other.
| More likely to help | Less likely to help |
|---|---|
| You expect to keep the home and the loan well past the break-even | A move, sale or refinance is possible before the break-even |
| Your quotes show a sizable rate cut per point | The rate cut per point is small, so the break-even runs long |
| Cash reserves remain after closing | Paying points would drain your emergency savings |
| The seller or builder is paying the points | Points would come out of a down payment you need to avoid mortgage insurance |
| A lower fixed payment matters for your long-term budget | Extra principal payments are already part of your plan |
Other ways to use the same cash
Points compete with other uses for the same cash.
A bigger down payment
Extra down payment lowers the loan amount and the payment, and it may cut your mortgage insurance cost. According to the CFPB, mortgage insurance is typically required when the down payment is under 20% of the price. So near that line, a bigger down payment can do more than a point.
Cash reserves
Reserves cover repairs, job changes and other surprises. Money spent on points, by contrast, can’t be pulled back out of the home.
Extra principal payments later
Extra principal also cuts total interest, and you can stop at any time. However, it does not lower the required payment the way a lower rate does. Our guide on how to pay off your mortgage early shows how it works.
Lender credits: the opposite trade
A lender credit works like negative points. The lender pays part of your closing costs, and you usually take a higher rate in return. The CFPB notes that with a credit “you may be paying a higher interest rate in exchange for this rebate.” To weigh one, compare the credit with the extra monthly cost over the time you expect to hold the loan. Our article on no-closing-cost mortgages covers this trade.
Seller-paid points
A seller or builder can pay discount points as a concession, within the loan’s limit on interested-party contributions. See our guide to seller contribution maximums by program.
Government loans allow points as well. VA Pamphlet 26-7 lets the seller, lender or any other party pay discount points, and seller-paid points “as appropriate to the market” don’t count as a seller concession (chapter 8, topics 4 and 5). Likewise, HUD Handbook 4000.1 says an FHA lender “may charge the Borrower Discount Points” (II.A.6.a.x(B)(2)).
Temporary buydowns are a different product
A temporary buydown, such as a 2-1 buydown, lowers the rate only for the first years, while the loan note carries the permanent rate. Fannie Mae limits the reduction to 3% and the yearly increase to 1% (Selling Guide B2-1.4-04).
Can you deduct mortgage discount points?
Possibly. IRS Publication 936 (2025 edition) treats points as prepaid interest, so you generally deduct them over the life of the loan. Also, you must itemize deductions on Schedule A to claim them.
Tests for deducting points in the year paid
You can deduct the full amount in the year paid only if all of these are true:
- The loan is secured by your main home, and you used it to buy or build that home.
- Paying points is an established practice in the area, and the amount isn’t above what is generally charged there.
- You use the cash method of accounting, as most individuals do.
- The points weren’t paid in place of fees normally listed separately, such as appraisal or title fees.
- Your own funds at or before closing, plus any seller-paid points, at least equal the points, and you didn’t borrow those funds from the lender or broker.
- The points were figured as a percentage of the principal, and the settlement statement clearly shows them as points.
Refinances, HELOCs and other cases
Refinance points are generally deducted over the life of the new loan. However, the part of a refinance used to substantially improve your main home may be deductible in the year paid. On a home equity loan or HELOC, points aren’t deductible unless the proceeds buy, build or substantially improve the home. Points on a second home are deducted only over the life of the loan. Finally, seller-paid points count as paid by the buyer, and they reduce the buyer’s cost basis in the home.
Whether a deduction helps depends on your whole return, so ask a tax adviser. Our overview of homeownership tax breaks covers the other deductions.
Mortgage discount points FAQ
What is a discount point on a mortgage?
It is a fee you pay at closing to lower your interest rate. One point costs 1% of the loan amount, or $4,000 on a $400,000 loan.
How much does one discount point lower your rate?
There is no fixed amount. It depends on the lender, the day, the loan type, your credit score and the loan size. To find it, ask for same-day quotes with and without a point and subtract the two rates.
How many discount points can you buy?
Each lender sets its own limit, so ask. Separately, federal rules cap points and fees on a Qualified Mortgage at 3% of the loan amount for loans of $137,958 or more in 2026. Up to two bona fide discount points can be left out of that cap when the rate before the discount is close to market averages (12 CFR 1026.43(e)(3) and 1026.32(b)(1)).
Are discount points the same as an origination fee?
No. An origination fee pays the lender for making the loan, while points buy a lower rate. Points also have their own line on the Loan Estimate.
Can the seller pay for discount points?
Yes, as a seller concession within your loan program’s limit on interested-party contributions. The Closing Disclosure shows seller-paid points in a separate column.
Are mortgage discount points tax deductible?
They can be, if you itemize. Generally, you deduct them over the life of the loan, and a full deduction in the year paid requires meeting every test in IRS Publication 936.
Your next step: get two quotes and run the numbers
Mortgage discount points pay off only if you keep the loan past the break-even, and that month comes from your own quotes. So ask two or three lenders for Loan Estimates with and without one point, on the same day.
Then divide each point’s cost by its monthly savings, and compare the result with how long you plan to stay. To see where rates stand before you call, check current mortgage interest rates.
