What are discount points?
Discount points are an upfront charge you pay at closing in exchange for a lower interest rate. One point equals 1% of your loan amount. On a Loan Estimate, they appear in Section A, Origination Charges, as a percentage and a dollar amount. Points lower your payment, but you pay for that up front.
What is a lender credit?
A lender credit is the opposite trade: you accept a higher interest rate and the lender pays part of your closing costs. It appears as a negative number in Section J. Lender credits can help if cash is tight or you expect to sell or refinance soon, but the higher rate costs you every month you keep the loan.
How do I calculate the break-even?
Divide the cost of the points by the monthly payment savings. The result is how many months it takes for the lower payment to repay what you paid up front. If you'll keep the loan well beyond that, points can save money. If you might sell or refinance before then, they probably won't.
Put simply: if the points cost 60 times what they save you each month, your break-even is 60 months, or five years. Keep the loan longer than that and you come out ahead; refinance or sell sooner and you don't.
Run your own numbers with the discount points calculator, using the two rates you were quoted.
How do I compare two offers fairly?
Compare offers at the same points. Ask each lender for a zero-points quote, or the same number of points, on the same loan type and term. Then compare Section A and page 3's In 5 Years line. Comparing a rate with points to a rate without them is apples to oranges.
When paying points tends to make sense
- You expect to keep the loan a long time, past the break-even.
- You have the cash and it won't drain your reserves.
- Rates aren't likely to drop enough for you to refinance soon. Nobody knows that for sure, so be honest about it.
When it usually doesn't
- You might move, sell, or refinance within a few years.
- Paying points would leave you short on savings after closing.
- The points were added without you asking.
FAQ
Is one point always 1% of the loan?
Yes. A discount point is 1% of the loan amount. How much a point lowers the rate varies by lender and day.
Are points the same as origination fees?
No. Origination fees pay for the lender's work. Discount points specifically buy down the rate. Both appear in Section A.
Can the seller pay my points?
Often yes, within the loan program's limits on seller contributions. It's negotiated in your contract.
Send me your Loan Estimate and I'll look it over myself.
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By John Stafford, Loan Officer, NMLS #2470539. John Stafford NMLS #2470539 | GoRascalJohn powered by GoRascal Inc. NMLS #2072896. Licensed in Texas and Tennessee. Equal Housing Opportunity. This article is general education, not legal advice, a loan approval, or an offer of credit. Example figures are illustrations only. Last updated October 22, 2026.