Points and Lender Credits
Pay more upfront or reduce your closing costs? When choosing a mortgage, you may have options involving discount points or lender credits.
Discount Points
You pay an upfront fee at closing in exchange for a lower interest rate. The potential benefit is a lower monthly principal and interest payment over the life of the loan.
Lender Credits
The lender provides a credit toward certain closing costs in exchange for accepting a higher interest rate than you might otherwise receive.
Why Does It Matter?
Paying points can make sense in some situations, particularly if you expect to keep the mortgage long enough to benefit from the lower payment. Lender credits may be attractive when conserving cash for closing is a priority.
One useful calculation is the break-even point:
Upfront cost ÷ monthly savings = approximate months to break even.
Don't automatically choose the lowest rate or the lowest closing costs. Compare the upfront cost, monthly payment, expected time in the loan, and overall cost.
This information is provided for general educational purposes only and is not a commitment to lend, an offer of credit, or individualized financial advice. Loan programs, eligibility requirements, interest rates, terms, fees, mortgage insurance, and guidelines are subject to change and may vary by borrower, property, lender, and loan program. All loans are subject to applicable underwriting, credit, income, asset, and property requirements.