What are Discount Points?
Discount Points, as expressed as a percentage of the loan, are a form of prepaid interest as fees the borrower pays the lender when the loan is closed. Discount points are offered in connection with the interest rate on a loan and are typically an option on most loans. The interest rate will be lower if you choose to pay points to "discount" the initial rate. On a $100,000 loan, two points equates to a payment of $2,000.
Zero-point loans are still the most common chosen, but circumstances are different for each borrower. Lenders will often have rate sheets with varying interest rates, and varying point costs. For borrowers who will likely have the mortgage for a long time, typically well over five years, paying points to reduce the rate may make financial sense because you will enjoy the lower rate for a long time.
