Costs

Discount Points

Discount points are an up-front fee you can pay to permanently lower your interest rate. One point usually costs 1% of your loan amount. Points may be worth it if you keep the loan long enough for the monthly savings to outweigh the cost, but not if you'll move or refinance soon.

Think of points as prepaying interest to get a lower rate for the life of the loan. The key question is your break-even: divide what the points cost by the monthly savings, and that’s how many months until you come out ahead. Stay past that point and the savings are yours; leave before it and you’ve likely lost money.

Points aren’t automatically good or bad, they’re a trade. If you have extra cash and plan to keep the loan a long time, they can pay off. If you’d rather keep cash on hand or might refinance soon, skipping them often makes more sense. I’ll show you the break-even math before you decide.

Related terms

APR

APR, or annual percentage rate, is the yearly cost of your loan including certain fees, not just the interest rate. Because it folds in some closing costs, the APR is usually a bit higher than your rate. It's meant to help you compare loan offers on a more apples-to-apples basis.

Rate Lock

A rate lock is a lender's commitment to hold a quoted interest rate for a set period, often 30 to 60 days, while you finish your loan. It protects you if rates rise before closing. The trade-off is that if rates fall after you lock, you usually don't get the lower rate automatically.

Closing Costs

Closing costs are the fees you pay to finalize your home purchase, on top of your down payment. They include lender fees, title and escrow charges, an appraisal, and prepaid items like taxes and insurance. Closing costs commonly run roughly 2% to 5% of the purchase price, though it varies by location and loan.

Last updated: June 5, 2026

This definition is educational and isn't an offer to lend or financial advice. Rates, programs, and guidelines may change without notice. All loans are subject to credit and property approval.

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