Discount Points.

In plain English

Discount points are a way to buy a lower interest rate on your mortgage by paying the lender money upfront at closing. One point costs 1 percent of your loan amount and typically lowers your rate by a fraction of a percentage point. Paying points only makes sense if you keep the loan long enough for the monthly savings to add up to more than the upfront cost. The moment when your accumulated savings equal what you paid is called the breakeven point, measured in months.

01Why it matters

Points can save you a lot of interest over a long ownership, but if you sell or refinance before you hit breakeven, you lose money. Knowing your breakeven month tells you whether the upfront cost is worth it.

02The math, step by step

On a $300,000 loan, one point costs $3,000. If that point lowers your payment by $45 a month, you break even after about 67 months, or roughly five and a half years. If you plan to stay in the home for ten years, the point pays off; if you expect to move in three years, it does not.

03What this is NOT

04Receipts

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