How Do Mortgage Discount Points
Contents
Affect my Costs and Monthly Payments?
What are discount points and how do they work?
Discount points are essentially a form of prepaid interest paid to your lender at closing which result in a lower interest rate and monthly payment. This is also known as buying down your interest rate. The more discount points you pay, the lower your rate could be.
How much does one point cost?
Buying one discount point would cost one percent of your loan amount. In other words, if your loan amount was $300,000, one discount point would cost $3,000. (ex: $300,000 * .01 = $3000)
How much will one discount point reduce my interest rate?
If buying down the rate with one discount point, your interest rate could be lowered by at least 0.125% depending on the product and your specific loan scenario.
For example based on a $400,000 purchase price:
| Points with 30 Year Loan | ||
|---|---|---|
| 0 Points | 1 Point | |
| Interest Rate | 4.750% | 4.500% |
| APR | 4.855% | 4.672% |
| Loan Amount | $300,000 | $300,000 |
| Down Payment | 25% | 25% |
| Term | 30 Years | 30 Years |
| Monthly Principal & Interest | $1,564.94 | $1,520.06 |
| Monthly Payment Savings | N/A | $44.88 |
| Discount Point Costs | $0.00 | $3,000.00 |
| Total Closing Costs | $3,592.77 | $6,592.77 |
| Break Even | N/A | 67 Months |
| Total Savings 68-360 months | N/A | $13,149.84 |
