Upfront fees paid to a lender at closing in exchange for a reduced interest rate — each point equals 1% of the loan amount.
Full Definition
Buying discount points (sometimes called 'buying down the rate') means paying extra money upfront to get a lower interest rate for the life of the loan. One point costs 1% of the loan amount — on a $400,000 loan, one point costs $4,000. The rate reduction per point varies by lender and market conditions, but commonly one point reduces the rate by 0.25%. Whether buying points makes sense depends on your break-even timeline: divide the point cost by the monthly payment savings to see how many months it takes to recoup the upfront cost. If you'll stay in the home (or keep the loan) longer than the break-even, points save money overall.
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