Points and lender credits are the two dials a lender can turn on your offer. One moves money from later to now. The other moves it from now to later. Neither is a discount.
What is a point?
The CFPB defines it cleanly. Points “lower your interest rate, in exchange for paying more at closing.”
One point equals one percent of the loan amount. On a $100,000 loan that is $1,000. On this $320,000 loan, one point costs $3,200.
Points do not have to be whole numbers. You can pay 1.375 points, 0.5 points, or even 0.125 points.
In exchange the lender lowers your rate for the life of the loan. On this loan, that reduction is worth about $52 a month. How much rate a point buys is set by the lender, not by a rule, so this page assumes a quarter point of rate per point and lets you change that in Your numbers.
What is a lender credit?
The same machine running backwards. Lender credits “lower your closing costs up front, in exchange for a higher interest rate.”
Some lenders call them negative points on a worksheet. That name is honest, because the math is identical with the sign flipped.
A credit is not free money. In the CFPB’s own worked example, a $675 credit costs $14 more every month for as long as you hold the loan. That crosses over the $675 in about four years.
What does the trade look like in real numbers?
The CFPB publishes a small table. Start with a $180,000, 30 year fixed loan at 5.0% and zero points.
Pay 0.375 points, which is $675, and the rate drops to 4.875%. You save $14 a month.
Those rates come with an APR, the yearly cost of the loan once fees are counted. The CFPB does not publish one for this table, so here is an illustrative set from our own calculator, assuming $3,000 of lender fees on the $180,000 loan: the 5.0% zero point loan works out to about 5.15% APR, the 4.875% loan with 0.375 points to about 5.06% APR, and the 5.125% loan with the $675 credit to about 5.24% APR. Change the fee assumption and every one of those moves.
Take 0.375 negative points instead, and the lender hands you $675 toward closing. Your rate rises to 5.125% and you pay $14 more a month.
That is the whole idea in one table. Small cash now, small payment change later, in both directions.
How much rate does one point buy?
There is no set answer, and that surprises people. The CFPB says discount points “have no fixed value in terms of the change in interest rate.”
Its example makes the point. A borrower with a $400,000 loan “might have to pay one discount point ($4,000) to reduce their interest rate by 0.25%, but another lender might equate one discount point, at the same cost, with a higher or lower interest rate reduction.”
So a point at one lender is not a point at another. You have to ask each one what their point actually buys.
Who ends up paying points?
Most borrowers, according to CFPB data covering the first three quarters of 2023. About 58.7% of home purchase borrowers and 56.2% of non cash out refinance borrowers paid some discount points. Among cash out refinance borrowers, nearly 9 out of 10 did.
Usage was also higher for borrowers with lower credit scores. The CFPB notes it is “possible lenders are offering these borrowers mortgages with discount points to ensure they qualify” by pushing the monthly payment down.
Those figures come from 2023 data and will age. Treat them as a picture of a moment, not of today.
What this means for you
Ask every lender for two quotes on the same loan: one with zero points, one with the points they want to sell you. Then compare the pair, not the headline.
Do the division yourself. Take the cost of the points and divide by the monthly savings. That gives you the month you break even. On this loan it lands at 61 months. For scale, our own illustrative figures on this $320,000 loan put the 6.5% zero point price at about a 6.59% APR and the 6.25% one point price at about a 6.44% APR, both assuming $3,000 in lender fees.
If you might sell or refinance before that month, the cash is better used elsewhere. If you are confident you will stay well past it, points can be a fair trade.
The CFPB frames it as a personal call, not a rule: “Points can be a good choice if you plan to keep your loan for a long time,” and they are “less useful for cash-strapped borrowers and those who expect to refinance or move in the near future.”
Whichever way you go, get it on a Loan Estimate. Points and credits both show up on page 2, in writing.