What Does Discount Point Mean?
A discount point is a payment mortgage loan borrowers can make to lower the interest rate on their mortgages. Each discount point costs one percent of the total mortgage amount.
Insuranceopedia Explains Discount Point
Discounts points are typically optional and mortgagees are not required to purchase any over the course of their mortgage. Mathematically and prudentially, however, it makes sense for borrowers to take steps toward lowering the interest rates on their loans. Doing so can save them quite a bit of money in the long run. Still, they are not always a financially responsible purchase for people who have few savings and need to make sure they are financially secure over the short term.
Discount points cost one percent of the total mortgage amount. For example, if a borrower has a $225,000 mortgage, they can reduce the interest rate by purchasing one discount point at a price of $2,250.