Discount Points
Related Terms: Points, Loan Discount Fee
Also called points, discount points work as pre-paid interest on your loan and help to lower your overall interest rate. A discount point is an upfront payment made during the closing stage of a mortgage transaction.
A point amounts for 1% of the total mortgage, and generally lowers your interest rate by .25%. It is also tax deductible for the year that it was paid.
You as the borrower, will see an advantage in paying discount points with the benefit of lowered interest rates. However, keep in mind that it’s important to see the loan through to the end in order to benefit from the decreased monthly payments and make up for the cost of the points.
Lenders also benefit from this since they get money upfront instead of waiting for monthly interest payments. It also means that if you default on the loan, they don’t suffer as much of a loss.
You as the borrower, will see an advantage in paying discount points with the benefit of lowered interest rates. However, keep in mind that it’s important to see the loan through to the end in order to benefit from the decreased monthly payments and make up for the cost of the points.
Lenders also benefit from this since they get money upfront instead of waiting for monthly interest payments. It also means that if you default on the loan, they don’t suffer as much of a loss.
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