What are discount points

Get a rate quote

Legally Reviewed by:

Tyler Arnaiz

August 29, 2025

12 years of experience

Personalized attention with one-on-one service

Wide range of options

I break down what discount points are & how to understand if they are a good idea or not.

KEY TAKEAWAYS

Discount points are an upfront fee paid to lower your mortgage interest rate — each point typically equals 1% of the loan amount
The par rate is the lowest rate a lender can offer without charging any points — this is the baseline to compare against
To decide if points make sense, calculate your recoup time: divide the cost of the points by your monthly payment savings
Tyler’s rule of thumb: recoup time should be12–24 months or less to justify paying points
If there’s any chance you’ll refinance, sell, or move before the recoup period ends, paying points is likely not worth it
Your loan officer should walk you through this math before recommending you buy down your rate — if they don’t, ask

About video

Discount points are one of the most misunderstood parts of getting a mortgage. When a lender offers you a lower interest rate, there’s often a cost attached to it — and that cost comes in the form of discount points. One point equals 1% of your loan amount, and paying points essentially means you’re prepaying interest upfront in exchange for a reduced rate over the life of the loan.

In this video, Tyler Arnaiz breaks down exactly what discount points are, how they appear on your Loan Estimate, and most importantly — how to calculate whether paying them actually makes financial sense for your situation. Not every borrower should pay points, and not every lender will be upfront about the recoup timeline. This video gives you the framework to make that decision yourself.