Mortgage discount points and lender credits: are they worth it?
Discount points are an upfront fee paid to the lender to lower your interest rate. One point costs 1% of the loan amount. Lender credits work the other way: you accept a higher rate and the lender pays part of your closing costs. Points tend to pay off only if you keep the loan long enough to pass the break-even point, which is the upfront cost divided by your monthly savings.
How points work
The CFPB explains that points are calculated as a percentage of the loan: one point equals 1% of the loan amount, so one point on a $300,000 loan costs $3,000. How much each point lowers the rate varies by lender and day; there is no fixed rule. Points appear in section A of page 2 of the Loan Estimate.
How lender credits work
With lender credits you pay a higher rate and the lender covers some closing costs. This can help if you're short on cash at closing or expect to sell or refinance soon. They appear as a negative number in section J.
The break-even calculation
Hypothetical example: you pay 1 point ($3,000) on a $300,000 30-year loan to cut the rate from 7.00% to 6.75%. Principal and interest falls from $1,995.91 to $1,945.79, saving $50.12 a month. $3,000 ÷ $50.12 ≈ 60 months, so you'd need to keep the loan about 5 years before the points pay off.
If you might sell, refinance or move before the break-even point, points are likely to cost more than they save. Our break-even calculator works for points too.
How to compare offers with different points
- Ask each lender for quotes at the same number of points (for example zero points), on the same day, so the rates are comparable.
- Compare the APR on page 3; it includes points and some other fees, so it helps compare offers with different upfront costs (see APR vs interest rate).
- Don't confuse discount points with origination points. Both are in section A, but only discount points buy a lower rate.
Frequently asked questions
How much does one mortgage point cost?
One point costs 1% of the loan amount, for example $3,000 on a $300,000 loan.
How much does one point lower the rate?
It varies by lender and market conditions. Ask each lender for its quote with and without points on the same day.
Are lender credits free money?
No. You pay for them through a higher interest rate over the life of the loan. They make sense mainly if you need lower upfront costs or won't keep the loan long.
Are points tax-deductible?
Sometimes. The rules depend on your situation; check IRS guidance or a tax professional.
Sources
- CFPB: What are discount points and lender credits? (accessed October 29, 2026)
- CFPB: Loan Estimate explainer (accessed October 29, 2026)
- CFPB: Mortgage interest rate vs APR (accessed October 29, 2026)
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