Prepaid interest that reduces your mortgage rate. One point costs 1% of the loan amount and typically reduces the rate by 0.25%. On a $400,000 loan, one point costs $4,000. Points make sense if you plan to keep the loan long enough to recoup the upfront cost through lower monthly payments.
Definition reviewed by Renzo Johnson, Licensed MLO, NMLS #PENDING. Last updated February 2026.