In real estate finance, Discount Points are fees paid by the borrower (or sometimes the seller) to the lender at closing in exchange for obtaining a mortgage at a specific interest rate. Each discount point equals one percent of the loan amount, and paying points generally allows the borrower to secure a lower interest rate over the life of the loan.
Discount points are considered prepaid interest and are part of the overall cost of financing a property. Borrowers may choose to pay points upfront to reduce monthly payments, especially if they plan to hold the loan for a long time. Whether paying discount points is beneficial depends on factors such as the size of the loan, the interest rate reduction, and how long the borrower expects to keep the mortgage.
