As a result, the lender generally lowers the interest rate by 0.25. A mortgage discount point usually reduces your monthly interest payment by 0.25%. So, if your mortgage rate is 5%, one discount point would lower your rate to 4.75%, two points would lower it to 4.5%, and so on. Using a discount point calculator, such as the one above, you can get an estimate of how much you could save over the life of your loan if you buy discount points. Typically, buying four mortgage points will lower your interest rate by 1 percent.
That's also the maximum number of points that most lenders will allow you to purchase. If you don't pay off your loan early, you'll eventually save more in interest than you spent upfront. Basically, you pay some interest upfront in exchange for a lower interest rate over the life of your loan. Each point you buy costs 1 percent of your total loan amount.
