MortgageMath US

Mortgage glossary

Discount points

Prepaid interest that buys a lower rate for the life of the loan.

By the Editorial team Last reviewed 1 min read

1%

Cost of one point, share of the loan amount (CFPB)

CFPB · Oct 19, 2023

Quick answer

Discount points are an upfront fee you pay the lender at closing in exchange for a lower interest rate than you’d get with a zero-point loan. One point costs 1% of the loan amount, and points are listed in section A on page 2 of the Loan Estimate and Closing Disclosure.

Key facts

1%

Cost of one point, share of the loan amount

CFPB · Oct 19, 2023

7.24%

30-year fixed average (used in the example)

Freddie Mac Primary Mortgage Market Survey · Week of Oct 29, 2026

Finding the break-even

How much a point lowers the rate varies by lender, loan type and market, so this is only an illustration. On a $300,000 30-year loan at 7.24%, principal and interest is $2,044 a month. If one point ($3,000) cut the rate by 0.25 percentage point to 6.99%, the payment would drop to $1,994, saving $51 a month. You’d need about 60 months, roughly 5.0 years, to earn the cost back. Sell or refinance sooner and the point loses money. The CFPB suggests asking for quotes with and without points and comparing them over the shortest, longest and likeliest time you’ll keep the loan.

Points and your taxes

Points are prepaid interest. IRS Publication 936 lets you deduct points on a loan to buy your main home in the year paid if a list of tests is met; otherwise they’re deducted over the life of the loan. Only borrowers who itemize benefit.

Sources

  1. Freddie Mac Primary Mortgage Market Survey — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
  2. CFPB — Cost of one discount point (share of loan amount) (Oct 19, 2023)
  3. IRS Publication 936: Home Mortgage Interest Deduction

Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.

Buying a homeMortgage points and lender creditsWhat a point costs, how to work out the break-even month, and when lender credits are the better deal.6 min readGuidePoints or a bigger down payment: where extra cash at closing saves moreThree uses for extra closing cash — points, a bigger down payment or reserves — compared over 3, 5, 7 and 10 years.8 min readGlossaryClosing costsLender fees, third-party services, taxes and prepaids you pay at closing, on top of the down payment.1 min readGlossaryCash to closeDown payment plus closing costs, minus your deposit and credits: the amount you bring to closing.1 min readGlossaryEarnest moneyThe good-faith deposit paid with a purchase contract, credited to you at closing.1 min readGlossaryOrigination feeThe lender’s charge for processing, underwriting and funding your loan, shown in section A.1 min readGlossaryLender creditMoney from the lender toward closing costs, in exchange for a higher interest rate.1 min readGlossaryPrepaid itemsInterest, insurance and taxes paid at closing ahead of their due dates (section F of the Loan Estimate).1 min readGlossaryTitle insuranceInsurance against title problems from before your purchase; lenders require their own policy.1 min readGlossaryRecording feeThe government charge to record your deed and mortgage in the public land records.1 min read

On this page

  1. Quick answer
  2. Key facts
  3. Finding the break-even
  4. Points and your taxes
  5. Related terms
  6. Sources

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