Discount Points

Discount points are essentially prepaid interest that allow you to lower your interest rate. Each point equals 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. Discount points can lower your monthly loan payment, so you may want to purchase them if you plan to remain in your home for more than a few years. Points are tax deductible for home purchases and you may be able to negotiate for the seller to pay for some of them.

Ready to start your online mortgage application?
Return to Glossary