Process · 8 min read
What are mortgage points, and how do I watch for them in a low rate quote?
August 28, 2026 · Written by Bill Egan, NMLS 7342
Short answer
A point is one percent of the loan amount. Origination points are a fee for making the loan. They do not buy a lower rate. Discount points are prepaid interest: you pay cash at closing to lower the interest rate. A very low advertised rate often has those discount points hidden in the cash you bring to the table. Discount points can save you money if you keep the loan past the break-even month. They are a poor bet if you might sell or refinance before that, or if rates look likely to fall in the next few years.
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Why this comes up
You saw a rate that looked almost too good, or you are holding two quotes and the lower one asks for more cash at closing. Someone said “points,” and it sounded like a sports score. You reached out because you do not want to find out at the signing table that the cheap-looking rate was expensive up front.
Think of the loan as a long bill you pay every month. The interest rate is how fast that bill grows. A point is not a mystery product. It is one percent of the loan amount. On a $400,000 loan, one point is $4,000. There are two kinds, and they do completely different jobs.
Origination points are a fee to the company for originating the loan — taking the application, processing it, and getting it to the closing table. They do not buy a lower rate. They are compensation. If a quote has origination points, you are paying for the work of making the loan, not for a cheaper payment.
Discount points are prepaid interest. You are paying some of the interest now, in cash, so the lender can give you a lower rate for the life of that loan. One discount point usually lowers the rate a little. Two points lower it more. The exact trade changes with the market, which is why you should never pick a rate from an ad without asking how many discount points sit behind it.
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Where this goes wrong
The trouble starts when a low rate is used as bait. The ad, the text, or the first phone call shows a number that beats every other quote. The Loan Estimate — the three-page cost sheet you get after you apply — then shows two or three discount points, sometimes plus an origination point. Cash to close jumps by thousands of dollars you did not plan to bring. Earnest money is already hard. The seller will not wait while you re-shop.
It also goes wrong when the two kinds of points are mixed together on purpose. A line that just says “points” can be origination, discount, or both. If you do not ask which is which, you may pay a fee that never lowers the payment.
The third ugly moment is after closing. Discount points only pay you back if you keep that loan long enough. Take a simple picture: you pay $4,000 in discount points and your principal-and-interest payment drops by $80 a month. Divide $4,000 by $80. That is 50 months — a little over four years — before you have your cash back. Until that month, you are behind. After that month, every month of the lower payment is savings.
If you sell the house in two years, or refinance because rates fell, those $4,000 do not come back. They were used up on a loan you no longer have. That is why buying points in a market that may drop over the next few years is a bad fit for most first-time buyers. You paid to lower a rate you might not keep.
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What we do about it
Egan Financial Group LLC does not quote a bargain rate that only works if you pay a pile of points at the table. If a number looks unusually low, we will tell you what cash sits behind it instead of letting the payment do the selling.
If you want to use discount points to lower the rate on purpose, we will price that honestly, and we are competitive there. That is a different conversation from bait. You are choosing to spend cash today for a lower payment, with your eyes open.
We separate origination from discount on the quote. Origination, if it is there, is a fee. Discount is the rate trade. We run the break-even in months: cash you pay in points, divided by the monthly savings. If you will not keep the loan past that month, we will say so. We do not like to charge discount points when rates look like they could fall in the next few years, because then you are paying to lower a rate you may refinance away. Points make more sense when rates are in a historic dip, or when you are sure you will not sell or refinance — you plan to stay in the house and keep this loan.
We take the application, underwrite the file, and fund the loan (NMLS 2647764). The same person who explained the points is still on the file at the table.
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How to get ready
On every quote, ask three questions in writing.
First: what is the interest rate with zero discount points and zero origination points? That is the clean rate. If they will not give you that number, you cannot compare.
Second: if I pay points, how many are origination and how many are discount? Origination does not buy a lower rate. Discount does.
Third: if I pay the discount points, how many months until I get that cash back in lower payments? That is the break-even. Write it down. If you might move, sell, or refinance before that month, skip the points. If you are sure you will keep the loan well past that month — and rates look like a long-term low, not a pause before a drop — discount points can be useful. Past the break-even, they do save money. That is the whole idea.
Bring both quotes to the same loan amount, the same down payment, and the same lock period. Compare cash to close and the monthly principal and interest, not just the headline rate. If the low rate only works with points you cannot write a check for, it is not your rate.