Mortgage points, also known as discount points, are fees paid upfront to a lender at closing in exchange for a reduced interest rate on a mortgage loan. One mortgage point equals 1% of the total loan amount. For example, on a $100,000 loan, one point would cost $1,000

. There are two main types of mortgage points:

• Discount points: These are prepaid interest that lower your mortgage interest rate, typically by about 0.25% per point. Lowering the interest rate reduces your monthly payments and the total interest paid over the life of the loan. You can buy fractional points or multiple points depending on how much you want to reduce the rate

• Origination points: These are fees paid to the lender for processing the loan and do not reduce the interest rate. Origination points are usually negotiable and are distinct from discount points

Buying mortgage points is generally beneficial if you plan to keep the loan for a long time because the upfront cost is offset by the interest savings over time. However, if you plan to sell or refinance before reaching the "break-even" point, paying points may result in a net loss

. Points are paid at closing and appear as prepaid interest on loan documents. They can also help borrowers qualify for a loan by reducing monthly payments

. In summary, mortgage points are a way to pay interest upfront to secure a lower interest rate and monthly mortgage payments, potentially saving money over the long term