Paying points is a way to permanently reduce your mortgage interest rate. Each point costs 1% of the loan amount and typically reduces the rate by 0.125–0.25%.
Example: 2 points on a $250,000 loan = $5,000 upfront. If that reduces monthly payment by $50, break-even is 100 months (~8.3 years). Points make sense if you plan to hold the loan beyond the break-even point.
Hard money and bridge lenders charge origination points (2–4 points) as fees rather than rate buydowns — these are a cost of financing, not an optional rate reduction.
Related Terms
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that resets periodically after an initial fixed period.
Hard Money Loan
Short-term, asset-based financing used by investors for acquisitions or rehab — typically 6–24 months.
Amortization
The gradual repayment of a loan through scheduled payments of principal and interest.