Definition
Mortgage points (each equals 1% of loan amount) are fees paid to the lender for reduced interest rates (discount points) or received as compensation for accepting higher rates (negative points). The break-even point determines whether paying points is worthwhile.
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Find my pathAbout this term
One point equals 1% of the loan amount. Borrowers can choose to pay points upfront to reduce the interest rate (discount points) or receive points as compensation if they accept a higher rate (negative points). The break-even point depends on how long the borrower keeps the loan.
Pro Tip
Calculate the break-even point by dividing the cost of points by the monthly savings; if you plan to stay less than that time, skip the points.
Example
On a $300,000 loan, 1 point costs $3,000. Paying this point might reduce the interest rate from 6.5% to 6.25%, saving approximately $50 monthly.
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