What Are Discount Points?

Short answer

Discount points are an upfront fee you pay at closing to get a lower interest rate, and one point equals 1% of the loan amount (CFPB, checked October 2026). On a $400,000 loan, one point costs $4,000. Lender credits work in reverse: a higher rate in exchange for help with closing costs.

Definition

Points are prepaid interest: you pay more now to pay less each month. They can be fractions, like 0.5 points.

Worked example

Example only: on a $400,000 loan, 1 point = $4,000 and 0.5 points = $2,000. Suppose (for illustration, not a quote) paying 1 point lowers the monthly payment by $80. Break-even = $4,000 / $80 = 50 months, a little over 4 years. Sell or refinance before then and the points cost you money.

How to decide

The CFPB suggests asking for two options, one with points or credits and one without, and comparing total cost over the shortest, longest and most likely time you'll keep the loan.

• Keeping the loan a long time: points can pay off
• Unsure how long: you might skip points
• Short on cash to close: consider lender credits

Where points show up

Points appear in Section A (origination charges) of the Loan Estimate and Closing Disclosure. Compare offers with the same points; a low rate with 2 points isn't the same deal as a slightly higher rate with none. Rates vary daily; call 305-425-1990 for today's pricing.

In South Florida

Many South Florida buyers refinance or move within a few years, and investors often sell or refinance after renovations. If that's your plan, points may not pay off; a seller credit might be better used for closing costs.