Discount Point

A type of mortgage loan fee that enables a borrower to lower their monthly interest rate by paying a percentage of the loan upfront, commonly called buying down a rate. One point equals 1% of the loan amount. Sometimes half points are offered, but this is less common. Point options will vary by lender or broker, but borrowers should think about how much they’re ready to invest up front and the length of time they expect to have the mortgage loan when deciding whether to buy points. If a buyer expects to be in a home for a long time, it might make sense to pay more up-front to benefit from lower interest rate payments for the life of the loan. But, if the buyer doesn’t think they’ll be in the home for more than a few years, it might make more sense to pay less up-front and make slightly higher interest rate payments. If a borrower gets a loan through a mortgage broker, sometimes the broker will receive a premium from the lender funding the loan. Mortgage discount points are tax deductible as home mortgage interest when itemized on line 10 of Form 1040, Schedule A (PDF).

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