# What is the meaning of discount points?

**Discount points**are a type of prepaid interest or fees mortgage borrowers can purchase that lowers the amount of interest they have to pay on subsequent payments.

Also know, how do you explain discount points?

Mortgage **points**, also known as **discount points**, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. One **point** costs 1 percent of your mortgage amount (or $1,000 for every $100,000).

Additionally, are discount points worth it? Paying mortgage **points** to get a lower rate on a mortgage is almost always a losing proposition. Most homeowners don't keep their mortgages long enough to do more than recoup the up-front cost of paying **points**. A point is 1% of your loan amount. If you take out a $250,000 mortgage, 1 point equals $2,500.

In this way, what is the primary purpose of discount points?

Mortgage points or “discount points” allow you to pay more in closing costs in exchange for a lower mortgage rate. That means you'll have a bigger upfront fee, but a lower monthly payment over the life of your loan. One mortgage point typically costs 1% of the loan amount, and lowers your **interest** rate by 0.25%.

Is it better to pay points for a lower mortgage rate?

The **lower** the **rate** you can secure upfront, the less likely you are to want to refinance in the future. Even if you **pay** no **points**, every time you refinance, you will incur charges. In a **low**-**rate** environment, paying **points** to get the absolute **best rate** makes sense. You will never want to refinance that loan again.