A mortgage point (discount point) equals 1% of your loan amount, paid upfront at closing to buy down your interest rate. One point typically lowers your rate by a small fraction — how much depends on the lender and market conditions.
A mortgage point — also called a discount point — is an upfront fee paid to the lender at closing in exchange for a lower interest rate on your loan. It is one of the most misunderstood line items on a Loan Estimate, but the math is straightforward.
One point equals 1% of your total loan amount. On a $300,000 mortgage, one point costs $3,000 at closing. Points do not have to be whole numbers — lenders commonly offer fractional points (0.5, 0.75, 1.25, etc.). The CFPB notes that by law, any points shown on your Loan Estimate must be directly tied to a reduced interest rate.
There is no universal answer — the rate reduction per point depends on the lender, loan type, and interest rate environment. Points are most valuable when rates are high (buyers are paying more to buy down from an elevated baseline) and least valuable when rates are already low. The CFPB illustrates the concept: paying $675 in points (0.375 points on a ~$180,000 loan) reduced the rate from 5.0% to 4.875%, saving $14/month.
The core question is: how long will it take for your monthly savings to offset the upfront cost? Divide the cost of the points by the monthly savings. If you pay $3,000 for points that save $75/month, your break-even is 40 months (just over 3 years). If you sell or refinance before then, you paid more than you saved. If you keep the loan well beyond break-even, points were a smart trade.
$300,000 loan. You pay 1 point ($3,000) to reduce your rate from 7.0% to 6.75%. Monthly savings: approximately $50. Break-even: 60 months (5 years). If you plan to stay in the home at least 5 years, the point likely pays off. If you plan to move in 3 years, it does not.