Process · 4 min read
Should I pay discount points or take a lender credit?
July 16, 2026 · Written by Bill Egan, NMLS 7342
Short answer
Discount points are prepaid interest that buy a lower rate. A lender credit does the reverse: you take a higher rate and the lender covers part of your closing costs. Pay points if you will keep the loan long enough to earn that money back. Take a credit if you need to preserve cash at the table.
01
Why this comes up
Someone said buy the rate down. Someone else said never pay points. You need cash at the table and you do not know if a lender credit is free money or a higher rate in disguise.
02
Where this goes wrong
Points are paid and you sell before they recoup. Or a credit is taken, cash still is not enough, and the file is short on the Closing Disclosure. A 2-1 buydown expires and the payment in year three no longer fits. That is a closing-day or a year-three problem created at application.
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What we do about it
We show both sides of the sheet: points as prepaid interest, credits as a higher rate that covers part of closing. A credit that covers title can be the difference between closing and missing a date. We will not call a two-year buydown your permanent loan.
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How to get ready
One point is 1 percent of the loan. Divide what you pay by what you save each month. If you need cash to close, take the credit and know the rate is the trade. If you will keep the loan a long time, run the months to recoup before you buy a point. Seller buydowns still have to fit the concession cap.