Mortgage interest rates are at all-time lows, but that doesn’t mean you should just jump on the first rate you’re offered. One way to get a lower interest rate is to pay discount points. But what are they, and are they worth it?
This guide explains what discount points are, how they work, and whether or not they’re worth it for you.
What Are Discount Points on a Mortgage?
Discount points are a way to lower your interest rate by paying upfront costs. Each point is 1 percent of the loan amount. That means on a $300,000 mortgage, one point would cost $3,000.
Paying discount points can lower your interest rate because you’re essentially prepaying some of the interest. The more points you pay, the lower your interest rate will be.
Related: Do you really need a home inspector?
How Do Discount Points Work?
When you’re taking out a mortgage, the interest rate isn’t just set by the market. There are other factors that affect it as well, like your credit score and down payment.
But one way to get a lower interest rate is to pay discount points. The more points you pay, the lower your interest rate will be.
How Do You Buy Discount Points?
Discount points are paid at closing, and they’re usually paid with cash or from your loan amount.
For example, say you’re taking out a $300,000 mortgage with a 4 percent interest rate. You could buy one point for $3,000 and lower your interest rate to 3.5 percent.
Or you could buy two points for $6,000 and lower your interest rate to 3 percent.
Should You Buy Discount Points?
Discount points are a way to lower your interest rate, but they’re not for everyone.
Before you decide whether or not to buy discount points, you should consider how long you plan on staying in your home. If you’re only planning on staying in your home for a few years, it might not make sense to buy discount points because you won’t save enough in interest to outweigh the upfront costs.
However, if you’re planning on staying in your home for 10 years or more, buying discount points could save you thousands of dollars in interest over the life of your loan.
You should also consider your financial situation. If you have the cash on hand to pay for discount points, it might make sense to do so. But if you’re tight on cash, it might not be worth it to pay the upfront costs.
Ultimately, whether or not to buy discount points is a personal decision. You should weigh the pros and cons and decide what’s best for you.
Related: What’s the difference between a fixed-rate mortgage and an ARM?
Discount points are a way to lower your interest rate by paying upfront costs. They’re not for everyone, but if you’re planning on staying in your home for a long time, they could save you thousands of dollars in interest.
- 4 Bedrooms
- 6 Bathrooms
- 6,861 Sq Ft
- 22.830 Acres
445 3rd Avenue Jasper, Indiana
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Listing courtesy of Steve Lukemeyer from F.C. TUCKER EMGE.
- 4 Bedrooms
- 5 Bathrooms
- 5,388 Sq Ft
- 1.064 Acres
1987 Grandview Drive Jasper, Indiana
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Listing courtesy of Steve Lukemeyer from F.C. TUCKER EMGE.
- 3 Bedrooms
- 3 Bathrooms
- 1,776 Sq Ft
- 6.260 Acres
1928 South A Street Jasper, Indiana
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Listing courtesy of Arlet Jackle from RE/MAX Local.
- 3 Bedrooms
- 3 Bathrooms
- 2,940 Sq Ft
- 2.530 Acres
634 E Wright Road Jasper, Indiana
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Listing courtesy of Stacey Hurst from RE/MAX REVOLUTION.
- 4 Bedrooms
- 2 Bathrooms
- 3,490 Sq Ft
- 0.371 Acres
307 Newton Street Jasper, Indiana
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Listing courtesy of Tama Stemle from RE/MAX Local.
- 3 Bedrooms
- 2 Bathrooms
- 1,502 Sq Ft
- 0.344 Acres
900 Juniper Court Jasper, Indiana
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Listing courtesy of Dara O'Neil from F.C. TUCKER EMGE.
- 3 Bedrooms
- 3 Bathrooms
- 2,734 Sq Ft
- 0.580 Acres
980 S Crestwood Dr. Jasper, Indiana
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Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.
- 3 Bedrooms
- 4 Bathrooms
- 1,568 Sq Ft
- 1.100 Acres
4667 W Ireland Church Avenue Jasper, Indiana
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Listing courtesy of Marissa Goodness from Carpenter Realty LLC.
- 3 Bedrooms
- 3 Bathrooms
- 2,548 Sq Ft
- 0.259 Acres
920 Brandon Avenue Jasper, Indiana
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Listing courtesy of Sandra Cave from RE/MAX Local.
- 4 Bedrooms
- 3 Bathrooms
- 2,549 Sq Ft
- 0.124 Acres
612 W 8th Street Jasper, Indiana
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Listing courtesy of Dara O'Neil from F.C. TUCKER EMGE.
- 2 Bedrooms
- 2 Bathrooms
- 1,800 Sq Ft
- 0.208 Acres
891 Giesler Road Jasper, Indiana
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Listing courtesy of Kevin Bayer from RE/MAX Local.
- 3 Bedrooms
- 1 Bathrooms
- 1,086 Sq Ft
- 0.360 Acres
4862 N US 231 Highway Jasper, Indiana
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Listing courtesy of Kevin Bayer from RE/MAX Local.
- 4 Bedrooms
- 2 Bathrooms
- 1,963 Sq Ft
- 0.101 Acres
1312 Mill Street Jasper, Indiana
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Listing courtesy of Felicia Drew from Carpenter Realty LLC.
- 5 Bedrooms
- 5 Bathrooms
- 4,353 Sq Ft
- 1.115 Acres
470 Charlene Drive Jasper, Indiana
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Listing courtesy of Brenda Welsh from SELL4FREE-WELSH REALTY CORPORATION.
- 1 Bedrooms
- 2 Bathrooms
- 662 Sq Ft
- 27 Acres
6272 N Kellerville Road Jasper, Indiana
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Listing courtesy of Gary Schnell from SELL4FREE-WELSH REALTY CORPORATION.
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View the newest homes listed in Dubois County in the last 10 days:
445 3rd Avenue Jasper, Indiana
4 Beds 6 Baths 6,861 SqFt 22.830 Acres
Listing courtesy of Steve Lukemeyer from F.C. TUCKER EMGE.
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Listing courtesy of Delmar Bromm from HOFFMAN & MULLEN REALTY INC.