Consider Paying Home Mortgage Discount Points

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Consider Paying Home Mortgage Discount Points

Written by: Joe Manausa, MBA

When it comes to comparing interest rates for a mortgage loan, home buyers often have the option of choosing a loan with a lower interest rate by paying discount points.

Simply put, discount points are fees charged by the lender to reduce (discount) the interest rate charged to the borrower. A point is equal to 1 percent of the loan amount. For example, with a $200,000 loan, one point equals $2,000. Points are usually paid out-of-pocket by the buyer at closing.

Paying points may seem attractive, because a lower interest rate means smaller monthly payments. But is paying points always a good idea? The answer generally depends on how long you plan to stay in the house. Let’s look at an example:

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