Discount points, most commonly referred to as loan discount points or mortgage points, can be a crucial aspect of securing a loan. These points are a type of prepaid finance charge, expressed as a percentage of the loan amount. For instance, a point on a $100,000 loan would equal $1,000.
Discount points offer a unique advantage: they can lower the interest rate on a loan. By paying points upfront, borrowers can reduce the amount of interest they pay over the life of the loan. Historically, discount points have been popular among borrowers looking to reduce monthly mortgage payments.