Why agents care
Points are central to buydown negotiations: a seller credit used for points can lower a buyer's payment more than a price cut. Showing the break-even makes the trade-off clear for both parties.
Glossary term
Discount points
Discount points are prepaid interest paid at closing to reduce the loan's interest rate. One point costs 1% of the loan amount. How much each point lowers the rate depends on the lender and market. Points make sense when the borrower keeps the loan beyond the break-even point.
Example
Example: two points on a $350,000 loan cost $7,000. If they lower the payment by $120 a month, the break-even is about 58 months.
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Questions by topic
Discount points: common questions
Are discount points tax-deductible?
They may be, depending on the situation. Buyers should ask a tax adviser.
Can a seller pay for points?
Yes, as a concession within the loan program's limits.
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