DayCents

Discount Points

Discount points are upfront fees you pay a lender to lower your mortgage interest rate — one point costs 1% of the loan and typically cuts the rate by about 0.25%. Buying points makes sense only if you'll keep the loan long enough for the monthly savings to recover the upfront cost.

Points are why two loans with the same rate can cost different amounts, and why APR — which folds points in — is the fairer comparison. Find the break-even month by dividing the point cost by the monthly savings; if you'll move or refinance sooner, points cost you money.