Discount Points
Also called: mortgage points, buying points, origination points
Discount points are upfront fees paid to buy a lower mortgage rate — one point costs 1% of the loan and typically cuts the rate by about 0.25%. Whether it pays depends entirely on the break-even: divide the cost by the monthly saving, and if you'll move or refinance before that many months, points lose. On a $400,000 loan, one point costs $4,000 to save roughly $60 a month, so the break-even is about five and a half years.