Question 1

What is a mortgage discount point?

Accepted Answer

A mortgage discount point is an upfront fee paid to a lender in exchange for a lower interest rate. One point equals 1% of the loan amount — on a $400,000 loan, one point costs $4,000. Each point typically reduces the rate by 0.20–0.25%, though the exact reduction depends on the lender and market conditions.

Question 2

How do I know if buying points is worth it?

Accepted Answer

The key metric is the break-even month — how long you must keep the loan before the accumulated monthly savings exceed the upfront cost. If you plan to sell, refinance, or pay off the mortgage before break-even, buying points costs you money. If you hold the loan past break-even, you come out ahead. Points are most valuable when you plan to stay in the home for 7+ years and rates are unlikely to drop significantly.

Question 3

Are mortgage points tax deductible?

Accepted Answer

Discount points paid on a home purchase mortgage are generally deductible as mortgage interest in the year paid, provided the loan is for your primary residence and the points represent a standard practice in the area. Points paid on a refinance must be deducted over the life of the loan rather than all in one year. Consult a tax professional for guidance specific to your situation.

Question 4

What is the difference between discount points and origination fees?

Accepted Answer

Discount points are optional prepaid interest that lower your rate — you choose to buy them. Origination fees are mandatory charges the lender requires to process and underwrite the loan. Both appear in the loan estimate under Section A, but only discount points directly reduce your ongoing interest rate.

Question 5

Can I negotiate mortgage points with my lender?

Accepted Answer

Yes. The number of points required for a given rate buydown is negotiable between lenders. Shopping at least three lenders for the same rate target will show you which lender offers the most efficient rate reduction per point paid. Points can also be negotiated as a seller concession — the seller pays your points at closing in exchange for a higher purchase price.

Mortgage Points Calculator