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When To Pay Mortgage Discount Points

Discount points are optional, upfront fees a buyer can pay in exchange for getting a lower mortgage rate from its lender.

One discount point costs 1 percent of the amount borrowed. Paying one discount point on a $100,000 mortgage would costs $1,000.

As a general rule, one discount point lowers your mortgage rate by one-quarter percentage point, or $12 per $100,000 borrowed.

Getting a smaller monthly payment can be good for your household budget. When you spend less on housing, you have more to spend more on living and saving.

There are three times when it makes sense to pay points.

  1. When you good savings, but low monthly income
  2. When you're certain you won’t sell or refinance within 5 years
  3. When the seller's paying your mortgage closing costs

Paying discount points isn't for everyone, though. The economic benefit isn't always there, and points are a sunk cost. They can't get recouped in a refinance or when a home sells.

Ask us your discount point question in the chat box. We're here to help.

Dan Green

Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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