Mortgage Points

What Are Mortgage Points?

Mortgage points, also known as discount points, are an opportunity to pay an extra amount of money during your mortgage closing period to reduce the interest rate of your home loan. While you don’t have to pay any mortgage points, lenders often give you the opportunity to pay mortgage points.

Should I buy mortgage points?

Mortgage points can save you money over time by lowering your interest rate, but it doesn’t always make sense to purchase them. First and foremost, it depends on how much cash you have available at the time of purchase. If you can make a full 20% down payment and closing costs with cash on hand available after closing, purchasing mortgage points may make sense. However, if you are planning to make a lower down payment, or if paying mortgage points would lower the amount you could put down on the house below 20%, the cost of private mortgage insurance would negate any benefits received from the interest rate discount.


You should also consider how long you will be living in the home to ensure that you will break even on the cost of the mortgage points. To calculate your break-even point, first determine the amount you will save each month with the lower interest rate. Then divide the total cost of mortgage points by the monthly savings. Your result will be the number of months before you break even. If you don’t plan on staying in your home until that time, you won’t be saving any money long term by purchasing mortgage points. For example, if you are saving $50 a month on interest payments by paying $3,000 up front for mortgage points, you should plan to stay in the home for at least 5 years to break even.

Discount points are a Schedule A tax deduction if you itemize your deductions. Talk to a tax advisor for more information.

All loans are subject to approval.

* This quote is subject to change by product and over time, based on market conditions.

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