Mortgage points and discount fees
Frequently Asked Questions
Straight answers to the questions we hear most.
Whether you should buy points depends on your individual circumstances and goals. Consider paying points if:
You have extra cash available for closing costs.
You plan to stay in the home long enough to “break even” (the point where your monthly savings exceed the cost of the points).
You prefer long-term savings over short-term cash flow.
You have extra cash available for closing costs.
You plan to stay in the home long enough to “break even” (the point where your monthly savings exceed the cost of the points).
You prefer long-term savings over short-term cash flow.
No, buying points is only a good financial decision if you plan to stay in the home long enough to break even—the point where the upfront cost is recouped by the monthly savings from the lower payment. If you sell or refinance before the break-even point, you will lose money.
Paying discount points (an upfront fee to lower your interest rate) will typically lower your APR. This is because you are paying more upfront to reduce the ongoing interest cost, which is a major component of the APR calculation.
Discount points paid on a purchase mortgage are generally tax-deductible in the year you pay them, as they are considered prepaid interest. For a refinance, points are usually deducted over the life of the loan. We recommend consulting a tax advisor for your specific situation.
Discount points are optional fees you pay to lower your interest rate. Origination points are fees charged by the lender to cover the cost of processing and underwriting the loan. Origination points do not lower your interest rate.
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