Question 1

What are mortgage discount points?

Accepted Answer

Discount points are upfront fees paid to the lender at closing in exchange for a lower interest rate. One point equals 1% of the loan amount. For example, on a $320,000 loan, 1 point = $3,200 upfront. The rate reduction per point varies by lender but is typically 0.20%–0.25%.

Question 2

How do I calculate the break-even on mortgage points?

Accepted Answer

Break-even = points cost ÷ monthly savings. If 2 points cost $6,400 and save you $80/month, your break-even is 80 months (6.7 years). If you plan to stay in the home longer than the break-even point, buying points is worthwhile.

Question 3

Are mortgage points tax deductible?

Accepted Answer

In many cases, yes — mortgage points are deductible as prepaid interest on your primary residence in the year you pay them. Consult a tax professional for your specific situation, as rules vary for refinances vs. purchase loans.

Question 4

What is the difference between discount points and origination points?

Accepted Answer

Discount points reduce your interest rate — you pay more upfront to get a lower rate. Origination points are fees charged by the lender to process the loan and do NOT reduce your rate. When comparing loans, make sure you know which type of points you're being quoted.

Question 5

When should I NOT buy discount points?

Accepted Answer

Avoid buying points if: you plan to sell or refinance before the break-even; you need that cash for closing costs or emergency reserves; current rates are already low (the savings per point shrink); or your lender's break-even exceeds 5–7 years.

Mortgage Points Calculator

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Mortgage Points Calculator

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