Mortgage points: Your basic guide

by Jennifer Louden 03/23/2025

Mortgage points can be a confusing topic, especially if you’re not familiar with them. And while they are hefty in value, the information surrounding them is often overwhelming. So, let’s start with the most basic point: What, exactly, are mortgage points, and why do I need to know about them?

Here’s a quick and simple guide to understanding the “what” and “why” of mortgage points:

What are mortgage points?

When your lender, loan officer or real estate agent brings up mortgage points, it’s best to think of them as discount points. These are typically points, calculated to roughly 1% of your final mortgage, that can be applied to your mortgage interest to bring the overall interest rate down throughout the life of your mortgage loan.

How do mortgage points work?

Mortgage interest rates are typically calculated into your monthly mortgage payment. With mortgage points, you can bring your overall monthly payment down by paying into your interest rates ahead of time.

So, if you have a mortgage of $200,000 with interest rates already calculated in, paying $2,000 up front would grant you a mortgage point, being that it is 1% of your overall mortgage balance.

Why do I need to know about mortgage points?

While it may seem easier to simply pay your monthly payments, and for some it’s the ideal choice, you may want to consider mortgage points if you’re searching within a market with slightly higher interest rates.

Likewise, if you’re planning to stay in your home long enough to watch your prepaid interest pay off in the long term, mortgage points may also be worth investing in.

Mortgage points can raise your overall closing costs by a significant amount. However, based on your unique circumstances, the bulk closing costs may be worth it if you’re interested in decreasing your monthly payments for the overall life of the loan.

Still have questions? Try connecting with your loan officer, lender or real estate agent to help guide you through the process.

About the Author
Author

Jennifer Louden

The big question.... 

What can I do for you that is different than any other Realtor or Real Estate Broker?  The answer is Personal Service.                            

I will work for you, at your comfort level, not pressuring you to look at, or buy homes that you are not interested in.  Buyers, I will not entice you to overspend and be house poor. Sellers, you always choose your selling price.  I will inform you of the current market and the trends that I see.  I never make choices for you.  I inform. All decisions are yours to make.  I am only an extension of you, doing as you instruct.   I will call you, text you or email you on a time schedule that you would prefer. Frequently if you desire; or not, depending on your requests. I will be working for you; and with you, doing my very best at all times.

My name is Jennifer Louden and I really enjoy helping you.