What Is a Discount Point in Real Estate?

Discount points, also known as mortgage points, are upfront fees a borrower pays to a lender at closing in exchange for a lower mortgage interest rate. Each point typically costs 1% of the loan amount and reduces the rate by about 0.25%.

šŸ’° How Discount Points Work

When you buy discount points, youā€™re paying some of your mortgage interest upfront. In return, your lender lowers your interest rate for the life of the loan. This can save money over timeā€”especially for long-term homeowners.

  • 1 point = 1% of the loan amount. (For a $300,000 loan, one point costs $3,000.)
  • Rate reduction: Typically 0.25% per point, though it varies by lender and loan type.
  • Break-even point: The time it takes for monthly savings to outweigh the upfront cost.

Borrowers planning to stay in their home for many years often find discount points worthwhile, while short-term owners may not recoup the upfront expense.

šŸ” Discount Points vs. Buydowns

Although both lower your interest rate, buydowns are temporary, while discount points provide a permanent rate reduction. Points are paid by the buyer, whereas buydowns are often funded by sellers, builders, or lenders.

šŸ“ˆ Why FSBO Sellers Should Understand Discount Points

Sellers who understand how discount points work can better negotiate with buyersā€” for instance, offering seller credits toward points instead of lowering the list price. This approach can attract more qualified buyers and preserve your net proceeds.

When you list your home through Brokerless, you can mention incentives like rate buydowns or seller-paid points right in your MLS listing to stand out in competitive marketsā€”all without paying 6% in commissions.

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