Paying today for a lower rate
A discount point is an upfront mortgage charge associated with reducing the interest rate. The CFPB explains that one point equals 1% of the loan amount. The size of the rate reduction depends on the offer; one point does not mean your interest rate falls by one percentage point.
A point also differs from a general origination fee, which compensates the lender for making the loan. Ask the lender to identify which charge buys a rate reduction and which pays for processing or other origination work.
Example: $6,000 upfront
On a hypothetical $400,000 loan, 1.5 points cost $400,000 × 0.015 = $6,000. Assume a lender gives you two otherwise comparable offers and the one with those points reduces your monthly principal-and-interest payment by $100.
Simple break-even: 60 months
$6,000 upfront ÷ $100 monthly payment reduction = 60 months, or five years. The $100 reduction is an assumption for this example, not a rate quote.
After 36 payments, the assumed payment reduction totals $3,600, which is $2,400 short of the initial points. After 84 payments it totals $8,400, or $2,400 more than the points. That arithmetic gives you a starting comparison, not a complete measure of which mortgage is best.
What that calculation leaves out
The simple calculation ignores the time value of the upfront cash, tax effects, differences in remaining principal and any different fees between the offers. Selling, refinancing or paying off the mortgage can shorten the time available to recover the upfront cost. Financing the points also changes the loan balance and the comparison.
Build at least three scenarios using the actual offers: the shortest time you might keep the loan, your expected holding period and a longer period. Compare payments and the remaining balance at each endpoint. If spending the cash leaves too little for moving or repairs, include that practical constraint alongside the arithmetic.
Ask for a zero-point comparison
- What is the rate on the same loan without these points?
- Are the loan amount, term, lock period and other charges identical?
- How much does principal and interest change each month?
- Are there lender credits, and what interest-rate trade-off comes with them?
- What does the total comparison look like if I refinance earlier than expected?
Keep points on their own line in your closing-cost comparison. A lender's itemized offers are more useful than a rule of thumb about how many points a borrower “should” pay.
Sources & review notes
Reviewed October 23, 2026. Examples and calculations are FeeHQ illustrations, not quotes or guaranteed outcomes. Provider terms and individual circumstances vary. How we research fees.