What are points on a mortgage?

Mortgage points — also known as discount points — are a one-time fee borrowers pay to reduce home loan interest or refinance. One mortgage point equals 1% of your total home loan. You can generally expect a reduction of 0.25% interest for each purchased mortgage point. Most lenders have a limit on the number of points you can buy. 

Discount points are almost the same for adjustable-rate mortgages (ARM) and fixed-rate loans. However, the interest on the ARM adjusts after five to seven years. 

You can save a lot of money with mortgage points if you reside on the property long enough for savings through reduced interest rates even though you pay high upfront costs. 

You also save on monthly payments and taxes because your interest rate is low and mortgage interest is tax-deductible.

Buying mortgage points can be worth it if you plan on living on the property for a long time and you don’t move or refinance your loan before reaching your breakeven point.