Discount points are an upfront charge you pay at closing to get a lower interest rate on your mortgage for the life of that loan. One point equals 1 percent of the loan amount, so one point on a $200,000 loan is $2,000. Points don't have to be whole numbers, and how much each point lowers the rate isn't fixed: it depends on the lender, the loan type and the market that day. Whether points make sense comes down to how much cash you have, and how long you expect to keep the loan before you sell or refinance.
Every lender prices a loan as a menu. For the same loan on the same day, you can usually choose a rate with no points, a lower rate with points, or a higher rate with a lender credit. The CFPB describes it this way: a loan with one point should have a lower rate than the same loan from the same lender with zero points, and two points should get a lower rate still (CFPB, lender credits and points).
Points can be fractions, like a half point or an eighth of a point. The CFPB's example uses a $100,000 loan only because one point on it is an easy $1,000. That's a definition, not a typical loan amount.
People use "points" loosely for any fee that's a percentage of the loan. The federal disclosure rules don't. On your Loan Estimate and Closing Disclosure, points paid to reduce the interest rate go first in Section A, Origination Charges, shown both as a percent of the loan amount and in dollars with the label "% of Loan Amount (Points)." If you aren't paying points to lower the rate, that line has to be blank (12 CFR 1026.37(f)(1)). The CFPB adds that points on these forms must be connected to a discounted rate.
An origination fee, an underwriting fee or a processing fee pays the lender for making the loan. A discount point buys the rate down. If a quote says "1 point" and you can't tell which kind it is, ask.
Points permanently lower the note rate for that loan. A temporary buydown uses money set aside at closing to reduce your payment for the first year or few years, and then the payment goes up to the full note rate. They solve different problems: points help if you keep the loan a long time, a buydown helps with the early years. See how a temporary buydown works.
The basic test is a break-even point:
If you expect to sell or refinance before then, the points likely cost more than they save. The CFPB suggests asking for at least two options, with and without points, and comparing total costs over the shortest, longest and most likely time you'll keep the loan. A simple break-even doesn't count what that cash could have done elsewhere, like reserves or a larger down payment, so treat it as a starting point.
This article doesn't print sample rates or payments, because they change daily and they'd only be accurate for one borrower on one day. When we talk, I'll show you real options side by side from a current Loan Estimate.
Points are part of the price of your locked rate. Until you lock, the rate, points and credits on a Loan Estimate can change, and the Loan Estimate has to say so (12 CFR 1026.37(a)(13)). After you lock, the points tied to that rate are set unless something about the loan changes. See how a rate lock works.
On a Texas home equity loan under Section 50(a)(6), the cash-out refinance of your homestead, fees to originate and service the loan are capped at 2 percent of the loan amount. Interest and bona fide discount points used to buy down the rate aren't counted in that 2 percent (Tex. Const. art. XVI, sec. 50(a)(6)(E)). That's one reason Texas cash-out quotes separate true discount points from other fees so carefully.
On a Fort Worth area purchase, seller help toward points goes in the seller's closing cost contribution in Paragraph 12 of the TREC resale contract, so the dollar amount needs to fit both the points and your loan program's limit.
The IRS treats points as a form of prepaid interest. If you itemize, points on a loan to buy your main home may be deductible in the year paid when certain tests are met, and points on a refinance are generally deducted over the life of the loan. Seller-paid points can count as paid by you, with an adjustment to your basis (IRS Topic 504). I'm not a tax advisor, so check with yours.
This example is made up to show the mechanics. It uses no real rates or payments.
Marisol is buying a home in Keller with a $320,000 conventional loan. Her lender shows three options on the same day: zero points, one point, and a small lender credit at a higher rate. One point costs her $3,200 at closing. To decide, she compares the monthly principal and interest on the zero-point and one-point options, divides $3,200 by the difference, and gets the number of months it takes to break even. She expects to stay at least ten years, well past that point, and she still has savings left after closing, so she chooses the point. Her friend buying at the same time expects a job move in three years, which is before her own break-even, so she takes the zero-point option instead.
Wondering if paying points is worth it for you? I'll lay out a zero-point option and a points option for your actual loan and show you the break-even in months. Schedule a call, or when you're ready, start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026