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.
FHA Loan Articles
June 30, 2026FHA loans offer low down payment options and more forgiving credit requirements for borrowers who may not qualify for a conventional mortgage or need to save more money out of pocket at the front end of the mortgage. But even with more forgiving credit requirements, some borrowers are tempted to omit certain debt information from their home loan applications. What does it mean to conceal a debt or financial situation from your loan officer?
June 30, 2026Some borrowers start working on their credit scores but get impatient with the process because they can't predict when their efforts will change their FICO scores. How long does it take for your FICO scores to update when you pay off a loan, reduce your credit card balances, or take other steps to make yourself a better credit risk? The short answer is that credit reporting procedures are not standardized, and it may take more time than you realize to get those positive credit actions added to your credit report.
June 29, 2026Mortgage interest rates are "moving targets" shaped by national economic trends and the borrower's specific financial profile. What is your FHA loan interest rate? Much depends on the financial data you bring to the table. Lenders set interest rates daily based on a snapshot of market conditions, but the rate ultimately offered also reflects risk, equity, and the lending institution's internal operational costs.
June 28, 2026An FHA appraisal differs from a conventional appraisal. While the goal of a conventional appraisal centers on market value, the FHA appraisal also focuses on the buyer's safety and soundness. FHA lenders select the appraiser, not the home buyer.
June 24, 2026FHA loan closing costs vary by property price and geographic location, rather than by a single nationwide flat fee. Total settlement charges combine percentage-based fees, local government taxes, and marketplace service costs. If you are new to buying a home, you'll want to get familiar with the closing cost issues discussed here to avoid budgetary surprises later on.
