Understanding discount points
Learn how discount points can lower your monthly payment.
If you plan to stay in your home for an extended period of time, you might want to consider paying discount points to lower your interest rate. By paying points up front, you can lower your interest rate and monthly payment over the life of your loan.
How discount points can reduce your rate
You can reduce your interest rate when you "pay for points" to lower your monthly payment.
One point costs 1% of your refinance loan amount. Paying it can reduce your interest rate by about 0.25%.
For example:
- If your loan amount is $100,000, one point would cost $1,000 upfront.
- If you were quoted an interest rate of 4.00%, paying one point would reduce your interest rate to about 3.75%.
Paying discount points doesn't reduce the amount borrowed — it simply lowers your interest rate and monthly payment amount.
When you should consider paying points
The longer you plan to stay in your home, the better it is to pay points.
If you plan to move or refinance again within the next two to four years, paying points may not make sense.
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