Discount
points.
Paying up front for a lower mortgage rate

A fee you pay at closing to lower your interest rate. One point equals 1% of the loan amount, so one point on a $100,000 loan is $1,000. How much the rate drops depends on the lender, the loan, and the market.

Divide the cost of the points by how much they lower your monthly payment. That tells you how many months it takes to break even. If you expect to sell or refinance before then, the points cost more than they save.

Yes, on a fixed-rate loan, as long as you keep that loan. If you sell or refinance, you lose the rest of the benefit. On an adjustable-rate loan, your rate can change after the introductory period.

Yes, through the seller credits your loan allows. Limits depend on your loan. Fannie Mae caps seller contributions at 3% to 9% on a primary or second home, depending on your down payment. VA lets the seller pay discount points.

Sometimes. You can deduct points you pay to buy your main home in full the year you pay them if you itemize and meet the IRS tests, including bringing at least that much of your own money to closing. Points on a refinance or a second home are generally deducted over the life of the loan. Seller-paid points can qualify too, but they reduce your home's tax basis. Check with a tax advisor.

Points lower your rate for as long as you keep a fixed-rate loan. A 2-1 buydown lowers the rate you pay by 2% in the first year and 1% in the second. Then you pay the full note rate. A seller, builder, or lender can fund a buydown within the loan's limits. You still qualify at the full note rate.

It depends on your loan. VA purchase loans can't include discount points in the loan amount. If your loan allows you to finance points, your balance goes up by their cost. The IRS generally won't let you deduct financed points in full in the year you pay them.