What Are Loan Discount Points?

Home loans tend to be a little complicated to most people outside of the mortgage industry, but we pride ourselves on being able to walk our clients through the process with a high level of understanding and connecting them with mortgage professionals who take the time to break it down for them. One of the most common terms in the home loan industry is a “discount point” or just a “point”. 

Discount points are essentially a way to prepay the interest that you will owe on the home at the time of closing to reduce your overall interest rate. You can “buy down your rate” by paying more for the loan upfront so that you can save money over the term of your mortgage. One point equates to 1% of the total loan, so 1 point on a $300,000 mortgage would equal $3,000. The amount that buying this point affects your overall loan rate varies depending on the kind of loan you are getting and the lender you are working with. 

Take a look at this example from one of our favorite local lenders, Guaranteed Rate, for a breakdown on what the numbers look like when buying a point on a $300,000 loan for a $400,000 home. 

To summarize the chart, this buyer was able to save $13,149.84 over the course of their 30 year loan by paying $3,000 up front for a discount point. The longer the loan is, the more advantageous it is to pay for points so that you can reduce your monthly mortgage payment. 

If you would like a more in-depth explanation of the process or have any questions about home loans in general, give us a call today! We would be happy to help, and we can put you in touch with a variety of mortgage lenders to find you the loan you need. 

For more information on the concept of discount points, take a look at this article from our friends at Guaranteed Rate.