← All Glossary Terms
Definition
Discount points are optional prepaid interest you pay at closing to buy down your mortgage rate. One point equals 1% of your loan amount and typically lowers your rate by roughly 0.25%, though the exact reduction varies by lender and market conditions. For example, on a $300,000 loan, one point costs $3,000. Because you pay this cost upfront in exchange for smaller monthly payments, the key question is your break-even point—how long you must keep the loan before the monthly savings outweigh the upfront cost. If you sell or refinance before reaching break-even, you generally lose money on the points. Buyers who plan to stay in the home long-term are more likely to benefit. Discount points may also be tax-deductible in some situations, but rules vary, so consult a tax professional about your circumstances.
Also Known As
Mortgage points
Buydown points
Prepaid interest points
Rate buydown
Used in Context
- Planning to stay in your home for 15 years, you paid two discount points to lock in a lower rate and cut your monthly payment.
- Your loan officer ran the break-even math and showed that paying points wouldn't pay off if you expect to refinance within three years.
- A lender quote from a Dreamy Leads partner listed the rate both with and without discount points so you could compare total costs.
How much does one discount point cost?
One discount point equals 1% of your loan amount, paid at closing. On a $250,000 loan, one point costs $2,500. In exchange, lenders typically lower your interest rate by roughly 0.25% per point, though the exact reduction varies by lender and market.
Are discount points worth buying?
It depends on your break-even point—how long you must keep the loan before monthly savings cover the upfront cost. If you plan to stay in the home well past break-even, points often pay off. If you'll sell or refinance sooner, you may lose money.
Are mortgage discount points tax-deductible?
Discount points may be tax-deductible in some situations because they count as prepaid interest, but the rules vary based on your loan and how you file. Treatment can differ for purchases versus refinances, so consult a qualified tax professional about your specific circumstances.
Ready to compare mortgage options?
Free quotes from licensed experts — no spam, no obligation, results in 60 seconds.
Get Free Quotes →