What Is a Loan Discount Fee?

Introduction

The loan discount fee (often called discount points) is an upfront payment that lowers your interest rate. One point typically equals 1% of the loan amount. Paying points can reduce your rate, which lowers your monthly payment over the life of the loan.

See What Are Mortgage Points, Discount Points vs Origination Fee, and Mortgage Points vs Rate Trade Off.

Frequently Asked Questions

What is a loan discount fee?

The loan discount fee (often called discount points) is an upfront payment that lowers your interest rate. One point typically equals 1% of the loan amount and may reduce the rate by about 0.25%.

How does it differ from origination fee?

Discount points lower your rate; origination fees cover processing and underwriting. Both appear in origination charges on the Loan Estimate. See Discount Points vs Origination Fee.

When do discount points make sense?

Discount points can make sense if you plan to keep the loan long enough to recoup the upfront cost through lower monthly payments. Use a break-even calculator to compare.

Are discount points tax deductible?

Discount points paid on a purchase mortgage are generally deductible over the life of the loan. Consult a tax professional for your situation.