What are discount points
on a New Jersey mortgage?

Discount points, often just called points, are money you pay at closing to get a lower interest rate on your mortgage. You pay more up front and get a lower monthly payment over the life of the loan. The Consumer Financial Protection Bureau says points can be a good choice if you plan to keep the loan for a long time.

One point equals 1% of the loan amount, and points do not have to be whole numbers. A buyer might pay half a point or 1.375 points. How much the rate drops for each point depends on the lender, the kind of loan and the market. The points you pay for a lower rate are listed on page 2, Section A of your Loan Estimate and Closing Disclosure.

For example, say a buyer in Gloucester County takes a $300,000 mortgage. One point would cost $3,000 at closing. If the lower rate saves about $50 a month, it takes about 60 months, or five years, to earn the $3,000 back. A buyer who expects to sell or refinance sooner may come out ahead without the points.

Questions about the rate, what each point costs and how long it takes to earn the cost back go to your lender. The CFPB suggests asking a loan officer to show the same loan with and without points. Your agent can help you plan how the financing fits your offer and your closing costs.