Is It Worth It To Buy Discount Points for Your Mortage?

In order to lock in the super-low advertised interest rates, it’s often necessary to purchase “discount points”. These points are essentially a type of prepaid interest that allows mortgage borrowers to obtain a lower interest rate (saving them on each and every payment for their home).

Typically, each point costs one percent of the loan amount. For example, if you are securing a $150,000 loan, one discount point will cost $1500. Each discount point purchased will generally lower the interest rate by 0.125%.

Discount points can work well for some borrowers, but it’s not always the best option. Your lender can help you determine how you can save the most, and also when you will break-even on your points purchased. If your savings on mortgage payments won’t cover the cost of the discount point for ten years, for example, and you plan on moving within seven years, points may not be worth it.