An upfront fee paid to the lender to lower your interest rate. One point equals 1% of the loan amount and typically reduces your rate by 0.25%.
A discount point (or just "point") is a fee you pay the lender at closing to buy down your interest rate. Each point costs 1% of your loan amount and typically lowers your rate by about 0.25%.
Points make sense when you'll keep the loan long enough for the monthly savings to outweigh the upfront cost. That tipping point is called your break-even. If buying one point costs $3,200 and saves you $50/month, you break even at 64 months — about 5.3 years. Stay in the home past that, points were worth it. Sell or refinance before that, they weren't.
Points are tax-deductible (in most cases) on your federal return in the year you pay them, which can sweeten the math.
Example
On a $320K loan at 6.5%, you could pay $3,200 (1 point) to drop the rate to 6.25%. Monthly P&I drops from $2,022 to $1,970 — savings of $52/month. Break-even: ~62 months. Worth it if you'll stay 6+ years.
Formula
Break-even months = Cost of points ÷ Monthly payment savings
Also known as
points, mortgage points, buy-down points, rate buydown
Source:
CFPB