Real Estate Investing Glossary
Points (Discount Points)
Last reviewed 2026-07-15
Points are upfront fees paid to a lender, each equal to 1% of the loan amount, usually to buy a lower interest rate.
What are points?
A point is 1% of the loan amount paid at closing. Discount points buy down the interest rate, one point typically lowers a 30-year fixed rate by roughly 0.25%, though the exact trade varies with the market. Origination points, by contrast, are simply lender compensation and buy nothing.
Whether paying points makes sense comes down to a breakeven calculation: divide the upfront cost by the monthly savings to find how many months you must keep the loan before the point pays for itself. Breakevens commonly land between four and seven years, so points favor borrowers who will hold the loan long-term and hurt those likely to sell or refinance soon.
Hard money and private lenders quote points as their primary fee, often 1 to 3 points per loan, charged on every origination. On a six-month flip loan, 2 points is effectively a 4% annualized surcharge on top of the stated interest rate, which is why flippers care as much about points as the rate itself. For rental investors, points paid on investment-property loans are generally deducted over the life of the loan rather than all at once.
Formula
1 point = 1% of the loan amount; breakeven months = cost of points ÷ monthly payment savings
Worked example
On a $300,000 loan, one discount point costs $3,000 and drops the rate from 7.00% to 6.75%, cutting the payment by about $50 per month. Breakeven = $3,000 ÷ $50 = 60 months, so the point only pays off if you keep the loan for more than five years.
Frequently asked questions
- Are mortgage points worth paying?
- Only if you will hold the loan past the breakeven point, upfront cost divided by monthly savings. With a typical five-to-six-year breakeven, points make sense for long-term holds with stable financing plans and rarely make sense if you expect to sell, refinance when rates drop, or pay the loan off early. Ask the lender to quote the same loan at zero points so you can see the trade explicitly.
- What is the difference between discount points and origination points?
- Discount points are optional prepaid interest that lowers your rate, you get something for the money. Origination points are lender fees for making the loan and do not reduce the rate at all. Loan estimates disclose both; when comparing lenders, add all points and fees together and compare the annual percentage rate (APR), not just the headline rate.
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