Discount points
An upfront fee paid to the lender to reduce the interest rate on the loan. One point costs 1% of the loan amount. Whether it pays off depends on how long you keep the loan.
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Free to set up. No credit card.Part 1 of 4
Why a seller cares
Points are money paid at closing to lower the buyer's rate, and a buyer may ask you to pay them as a concession. It is a closing cost like any other, and it comes out of your proceeds.
Part 2 of 4
A simple example
The buyer asks for a $4,800 seller credit to buy two points on a $240,000 loan, dropping their rate from 6.75% to about 6.25%.
| The ask | What it costs you |
|---|---|
| Two points on $240,000 | $4,800 off your proceeds at closing |
| The same $4,800 as a price cut | The same to you; a smaller loan for them |
| Declining the credit | The buyer pays the points, takes the higher rate, or looks elsewhere |
A point is 1% of the loan. Whoever pays it, the number is fixed at closing.
Part 3 of 4
What people get wrong
That points are a lender fee the seller can ignore. When they are written into the offer as a credit, they are a cost of your sale.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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