Loan discount points are prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (for example, one point on a $100,000 loan would cost $1,000). Usually the more points you pay, the lower the interest rate and the lower your monthly payment.You should consider the difference in the monthly payment and how long you plan to stay in the house. This example shows how paying points can help lower your monthly payments and achieve greater savings over the life of the loan.

Paying Points Can Save You Money

Stay in the home for 61 months to recoup the cost of the points and continue saving with lower payments.

$200,000 Loan Amount

0 points = $0
2 points = $4,000

Monthly Payment*
0 Points $1,297
2 Points $1,231

Monthly savings of $66

Number of payments required to recover the cost of points is 61:

$66 = 61 months

* Principal and interest.