What are mortgage discount points and is buying down the rate worth it?

Discount points are prepaid interest you buy at closing to lower your rate – one point costs 1% of the loan amount and typically cuts the rate by about 0.25%. On a $400,000 loan, one point is $4,000 to shave roughly a quarter point off your rate. Whether it pays off depends on your break-even: divide the point cost by the monthly savings to see how many months until you recoup it, often 4–7 years. If you'll keep the loan and the home well past break-even, points can make sense; if you might sell or refinance sooner, you'd lose money. Points are also tax-deductible if you itemize. Compare buying points against simply putting that cash toward a larger down payment before deciding.