What to Know About FHA Home Loan Interest Rate Discount Points
September 18, 2025
Points are an optional fee that a borrower can pay to a lender at closing. In exchange for this fee, the lender agrees to lower the interest rate for the entire term of the loan.
How Much For One Point?
One point costs one percent of the total loan amount. For a $250,000 loan, one point would cost $2,500. This fee is paid as part of your cash to close.
Some borrowers ask how much a point will lower the rate. The short answer is, there is no fixed amount. The rate reduction offered for a point is set by the lender and changes based on market conditions.
One lender may agree to lower your rate by 0.25 percent for one point, while another might offer a different amount. A lender must provide you with a Loan Estimate document that shows you the rate with and without points so you can compare.
Breaking Even With Discount Points
And then there’s the "break-even point," which is the amount of time your total savings on monthly payments equal the initial cost of the points you purchased. After this break-even point you begin to see true savings. Before this point, you are still recouping the upfront cost.
You can calculate it in three steps. Let us use an example of a $250,000 loan, where you can pay $3,750 for 1.5 points to lower your rate from 6.5% to 6.0%.
The cost of the points is $3,750. Calculate the principal and interest payment for both rates. The payment at 6.5 percent is about $1,580. The payment at 6.0 percent is about $1,499. The difference, which is your monthly savings, comes out to $81. Divide the total cost of the points by your monthly savings. In this case, $3,750 divided by $81 equals about 46 months.
The break-even point is 46 months, which is approximately three and a half years.
Planning Your Loan
The most important factor is how long you plan to stay in the home and keep the loan. If you sell the home or refinance the loan before you reach the break-even point, you will lose money on the points you purchased. You must be confident you will keep the loan well past the break-even point to gain a benefit.
Consider the possibility of refinancing. If interest rates fall in the future and you refinance, the benefit of the points on your original loan is lost.
You should also consider your cash reserves. Paying for points requires a large amount of cash at closing, which could instead be used for an emergency fund, moving costs, or other needs.
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