Pricing & Math
What is a mortgage point?
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.
The full picture
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.
How points work
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.
How much does one point lower your 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 break-even calculation
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.
Break-even example
$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.
Key facts
- One discount point equals 1% of the loan amount and is paid at closing to reduce the interest rate. Points can be fractional. By law, points on a Loan Estimate must be tied to a discounted rate. — CFPB — Lender Credits and Points
- In 2023, discount points were paid on 58.7% of purchase-mortgage originations and 56.2% of non-cash-out refinance originations, up from 30.5% and 36.4% respectively in 2021, as rising interest rates made buying down the rate more attractive. — CFPB — Data Spotlight: Discount Points
- Freddie Mac advises that discount points make the most financial sense for borrowers who plan to stay in their home long enough to recoup the upfront cost through lower monthly payments. — Freddie Mac — Down Payments and PMI
Key takeaways
- One point = 1% of your loan amount, paid upfront at closing to reduce your interest rate.
- The rate reduction per point varies by lender and market — there is no fixed ratio.
- Calculate break-even: upfront cost ÷ monthly savings = months to recoup. Stay longer than that and points pay off.
- Points are most valuable when you plan to hold the loan long-term and have the cash to pay them without depleting reserves.
- Lender credits are the inverse — the lender pays some costs upfront in exchange for a higher rate.
Published 2026-05-22 · Updated 2026-05-22 · https://clearvaluelending.com/answers/what-is-a-mortgage-point