Buy mortgage points to reduce your rate
You have an option to reduce the interest rate on your mortgage loan by “paying for points.” One point costs 1% of your mortgage amount and can reduce your interest rate by about .25, meaning a lower monthly payment over the life of the loan.
Ways to lower rates
Learn how discount points can help lower the interest rate on your mortgage.
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Mortgage points: Paying up front
When you're paying for mortgage points, you’re essentially paying part of your interest up front. This lowers your interest payment because your lender receives the income in a lump sum at closing rather than collecting the interest as you make payments month to month.
If your mortgage amount is $100,000, one point would cost $1,000 at closing. If you were quoted an interest rate of 4%, paying one point would reduce your interest rate to about 3.75%.
Paying mortgage points doesn't reduce the amount borrowed—it simply lowers your interest rate and monthly payment. You aren’t required to pay points, though.
Does it make sense for you?
Generally speaking, the longer you plan to remain in a property or hold your mortgage, it is to your advantage to pay points. If you plan to move or refinance within the next 2–4 years, paying points may not make sense.
Find out if paying mortgage points would be beneficial with this calculator. You can estimate your "break-even" time frame—the point when you'll start to realize a genuine cost savings from your mortgage points.