Discount Point

Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Source: U.S. Department of Housing and Urban Development

In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.

Source: U.S. Department of Housing and Urban Development

A percentage of the loan amount paid to the lender to buy down the interest rate. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000.

Source: Ginnie Mae

Last reviewed October 2023