What are mortgage discount points? A guide to saving on your rate

If you’re looking to buy a home right now, you probably know that even a small change in your mortgage rate can make a big difference. That’s where tools like discount points come in.

As one-time optional fees on your loan, discount points lower your interest rate anywhere from one to three or four points. These points are a percentage of the total loan amount.

For buyers willing and able to pay a little more upfront, points offer a way to lower your interest rate and bring down your monthly costs.

It’s an option more homebuyers are exploring, especially in a high-rate environment.

Curious how mortgage discount points could lower your monthly payment or even help you afford more home? Let’s break it down.

A mortgage point, also called a “discount point,” is a one-time, upfront fee you can choose to pay your lender at closing to reduce your interest rate.

Each discount point is equal to 1% of your total loan amount. So, if you’re taking out a $150,000 loan, one point would cost $1,500.

In exchange, most lenders reduce your interest rate by 0.25% per point. It’s a way to “buy down” your rate–paying more upfront to pay less over time.

The biggest benefit of paying discount points is a lower monthly mortgage payment. And over time, those savings can add up.

Let’s say you’re approved for a $150,000 loan with a 30-year term at a 7% interest rate. If you pay one point ($1,500), your rate drops to 6.75%.

Here’s what that looks like:

• Without points (7%): ~$997/month
• With one point (6.75%): ~$973/month
• Monthly savings: ~$24
• Yearly savings: ~$288
• 30-year savings: ~$8,640

Not bad for a $1,500 investment–especially if you plan to stay in the home for a while.

Of course, you have to stay in the home long enough to make the upfront cost of the discount point(s) worth it. Which brings up the question…

To decide if buying discount points makes financial sense, you’ll want to calculate your break-even point–the number of months it takes for your monthly savings to exceed the upfront cost.

Using the example above:

• Cost of one point: $1,500
• Monthly savings: $24
• Break-even: $1,500 ÷ $24 = 63 months (or just over 5 years)

If you plan to stay in the home longer than five years, paying discount points could be worth it.

Use Guild’s Mortgage Closing Cost Calculator to estimate your upfront costs, including discount points, and see how it affects your monthly payment.

There’s no universal limit, but most lenders allow you to buy up to three or four points.

Your lender will walk you through a rate sheet, essentially a menu of interest rate options that show what each one costs or credits in points.

It can look a little intimidating at first, but don’t worry, your loan officer is there to help you understand your options and choose the one that makes the most sense for your goals and budget.

Possibly. Discount points may be tax deductible if…

• The loan is for your primary residence
• You itemize deductions on your tax return

Tax rules vary, so always check with a qualified tax advisor to confirm how mortgage points apply to your situation.

Paying points makes sense when:

• You plan to stay in your home for at least a few years
• You want to reduce your long-term interest cost
• You need a lower monthly payment to qualify for the loan
• You have extra cash available after covering your down payment and closing costs

It might not make sense if:

• You plan to sell or refinance within a few years
• You need to use your funds for other upfront costs
• You won’t break even on the investment in time

In a high-rate market, points can be a powerful tool to reduce sticker shock and lock in peace of mind.

Yes–in some cases, paying discount points can help you qualify for a mortgage.

Because discount points reduce your monthly payment, they also reduce your debt-to-income ratio (DTI). That could help you:

• Qualify for a larger loan
• Meet underwriting guidelines for a specific program
• Strengthen your application overall

Your loan officer can help you explore this strategy and see if it makes a difference for your approval.

If discount points aren’t the right fit, you still have options. Consider:

• Asking the seller to pay points as part of your offer
• Exploring a temporary buydown
• Making a larger down payment to reduce your loan amount
• Choosing an ARM (adjustable-rate mortgage) if you plan to move soon

Talk to your loan officer about which path fits your timeline, budget and goals.

There’s no one-size-fits-all answer. But here’s what we know:

• Points can lower your rate and monthly payment
• They can lead to big savings if you stay in your home long enough
• They require upfront investment, so timing and strategy matter

If you’re serious about lowering your monthly payment and locking in a more affordable loan, it’s worth exploring.