Definition
Prepaid interest paid at closing to reduce your mortgage rate, with each point costing 1% of the loan amount. The financial equivalent of paying now to save monthly forever, assuming you stay in the house long enough to break even.
Example Usage
He paid two discount points ($8,000) to lower his rate from 6.5% to 6%, saving $120 monthly but needing five years to recoup the cost.
Origin
Mortgage lending terminology that emerged in the mid-20th century
Fun Fact
The break-even point for buying discount points is typically 3-5 years, yet most people refinance or move within 7 years.
Source: Mortgage lending terminology
Related Terms
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See “discount points” in Corporate Speak, Gen-Z Slang, Pirate Speak, and more.
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