Discount Point

What Does Discount Point Mean?

A discount point is a fee that mortgage loan borrowers can pay to reduce the interest rate on their mortgage. Each discount point costs one percent of the total mortgage amount.

Insuranceopedia Explains Discount Point

Discount points are typically optional, and mortgage borrowers are not required to purchase them during the life of their mortgage. However, from both a mathematical and financial perspective, it often makes sense for borrowers to consider lowering the interest rates on their loans, as this can lead to significant savings over time. Nevertheless, purchasing discount points may not be financially responsible for individuals with limited savings who need to prioritize short-term financial security.

Discount points cost one percent of the total mortgage amount. For instance, if a borrower has a $225,000 mortgage, they can reduce the interest rate by purchasing one discount point for a price of $2,250.