Understanding Mortgage Points: When They Save Money

By Rick Carrier, NMLS #268110 · Innovative Mortgage Services, Inc. NMLS #250769 · Checked on October 20, 2026

Mortgage points confuse almost everyone the first time they see them on a loan estimate. The idea is simple, though, and once you understand it you can decide with a clear head whether paying them makes sense for you. In this article I explain how mortgage points work, what lender credits are, how to think about whether points can save you money, and what to ask before you say yes. I will not quote any interest rates, because the savings from a point change from lender to lender and day to day.

Mortgage points, also called discount points, are a fee you pay at closing to get a lower interest rate. The Consumer Financial Protection Bureau (CFPB) describes them as paying more at closing in exchange for a lower rate. One point equals one percent of your loan amount, and the CFPB notes a point does not have to be a whole number, so a lender can quote a fraction of a point.

Points are part of your closing costs, which means you need cash for them on top of your down payment. If you want to know what else you pay at the table, my guide to earnest money and closing costs covers the rest.

What are mortgage points?

Mortgage points, or discount points, are fees you pay at closing in exchange for a lower interest rate. The CFPB says one point equals one percent of the loan amount.

Are mortgage points worth it?

It depends on how long you keep the loan. If you stay long enough for the lower payments to outweigh the extra closing cost, points can save money. The CFPB says that if you are unsure how long you will keep the loan, you may not want to pay points.

What is a lender credit?

A lender credit lowers your closing costs up front, usually in exchange for a higher interest rate, according to the CFPB. It is the opposite trade from paying points.

Can I deduct mortgage points on my taxes?

Possibly. The IRS says points may be deductible as home mortgage interest if you itemize and meet its conditions, and refinance points are generally deducted over the life of the loan. Ask a tax professional about your case.