What Are Points and Upfront Fees?

When getting a mortgage, you may encounter the option to pay "points" — upfront fees paid to reduce your interest rate. One point typically equals 1% of your loan amount. For example, on a $300,000 mortgage, one point would cost $3,000. The idea is that by paying more upfront, you save on interest over the life of the loan.

But is it worth it? That depends on how long you plan to keep the loan. If you're staying in the home long-term, the interest savings may outweigh the upfront cost. If not, it might be money wasted. It’s also important to understand origination fees, which are charged by lenders to process your loan, and how these differ from discount points.

A 2023 CFPB report found that many borrowers are paying higher upfront fees — sometimes unnecessarily. Understanding the difference between fees and optional costs can save you thousands. Always review your Loan Estimate carefully and ask your lender to explain any fees you don’t understand.