What are discount points on a mortgage?

Discount points are also called mortgage points. Borrowers pay discount points as a one-time fee to reduce their mortgage or refinance interest.

Buying discount points is completely optional.  One discount point costs 1% of the mortgage amount and the lender usually reduces the interest rate by 0.25% for it. But it is difficult to say how much a discount point will reduce the interest rate. The “discount” depends on the lender, type of loan, current rates, and other factors.