Casa Academy

Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.

Discount Points

Discount points are prepaid finance charges paid at closing to reduce the loan interest rate, with each point typically equal to 1% of the loan amount in exchange for a lower note rate over the life of the mortgage.

Exam context

Calculate point cost as a percentage of the loan amount, not the purchase price. Distinguish discount points from origination fees that compensate the lender without guaranteeing a specific rate reduction.

Rate buydown mechanics

One point on a $300,000 loan costs $3,000 upfront and might reduce the rate by 0.25%. Borrowers who plan to keep the loan many years recoup points through lower monthly payments. Short-term owners may decline points because the upfront cost exceeds interest savings before they sell or refinance.

Disclosure and negotiation

The Loan Estimate and Closing Disclosure itemize points separately from appraisal and title fees. Sellers may credit buyer points as a concession subject to lender limits. Points paid on a primary residence may be tax deductible in the year paid under current IRS rules, but agents should refer tax questions to CPAs.

Examples

  • Two points at closing

    A buyer pays two points ($6,000 on a $300,000 loan) to reduce the rate from 7% to 6.5% and expects to break even after seven years of ownership.

  • Seller concession

    A contract credits the buyer $4,000 toward closing costs including one discount point, capped by the lender at 3% of the purchase price for conventional financing.

Keep studying

Practice discount points questionsEnroll in pre-licensing

Related terms

  • BuydownTemporary or permanent payment reduction using prepaid funds.
  • Conventional loanPrivate-market mortgage where points are commonly negotiated.

Related resources

Sources