TL;DR: A discount point is a bet that you keep this exact loan for five years. On a $400,000 loan, $4,000 to drop the rate from 7.25 to 7 percent saves $67.50 a month and takes 60 months to earn back. Keep the loan and send the $67.50 to principal, and the point beats putting that $4,000 on principal at closing.
On October 22, 2026, Freddie Mac put the average 30-year fixed at [7.32 percent][2]. At rates like that, the lowest payment on a quote often has [points built into it][3].
That lower payment is not a discount. You are buying it, and the price is on page 3 of the Loan Estimate, not page 1.
The payment is not the price
Points sit under origination charges on page 2. The [Comparisons section][4] on page 3 turns the whole offer into three measures:
- APR folds the upfront charges, points included, into a yearly rate.
- [Total Interest Percentage][5] leaves points out and assumes you keep the loan for the full term.
- In 5 Years shows what you will have paid after sixty months.
That last line answers the points question, because a point is a bet on time.
The five-year bet
Two offers on the same $400,000, 30-year fixed loan, every other charge equal:
| No points | One point | |
|---|---|---|
| Rate | 7.25% | 7.00% |
| Point cost at closing | $0 | $4,000 |
| Principal and interest | $2,728.71 | $2,661.21 |
| Interest over 30 years | $582,329 | $558,036 |
The point lowers the payment by $67.50 a month, so $4,000 takes 60 months to earn back.
The In 5 Years line agrees. Counting the point, the offers have cost $163,723 and $163,673 after five years. Fifty dollars apart.
Sell the house or refinance before then, and the savings stop before they cover the cost. A year ago the same survey read 6.19 percent. Nobody knows where it goes next, and that uncertainty is part of what you are paying for.
The same $4,000, sent to principal
The other way to spend $4,000 at closing is to keep 7.25 percent and send it to principal with the first payment. That saves $29,595 of interest and 12 months, more than the point's $24,294. It has no time limit either: if you sell, the $4,000 is already off the balance.
The point has one real advantage. It frees $67.50 a month. Send that to principal too, and both loans cost the same $2,728.71 a month:
- One point, savings to principal: 27 years 9 months, $506,264 of interest
- $4,000 to principal at closing: 29 years, $552,735 of interest
So the point wins on one condition, and it is the condition that breaks. A $67.50 difference is easy to miss. Unless it is set up to go somewhere, it stays in checking, and no mortgage statement will show what became of it.
Where PayOff Pro comes in
PayOff Pro does not compare Loan Estimates, it does not choose a lender, and it does not connect to your bank. It tracks the loan you choose, once you have it.
- A payoff date that moves. Log each extra principal payment, $67.50 or $2,000, and watch the projected date step closer.
- What-if scenarios. Compare sending the savings to principal against keeping them.
- The full interest picture. What your schedule costs, to the cent.
A logged payment is how you know the $67.50 actually became principal.
There is no account to create, no sign-in, and no tracking of any kind. Your loan stays on your iPhone.
Three things to do with two Loan Estimates
- Ask for both versions. Request each lender's quote with no points and with one point, so the comparison is like for like.
- Read page 3 side by side. APR, In 5 Years, then cash to close. A lower rate with a higher APR means fees are doing the work.
- Decide where the savings go before you sign. If you buy the point, set the difference up as a recurring principal payment from month one, and confirm in writing that your servicer applies it to principal.
The bottom line
You cannot control where rates go after closing, or whether life moves you before year five.
You can control which line of the Loan Estimate you read, and where the monthly savings go once you have them.
If you want to see what each extra payment does to your payoff date, PayOff Pro runs that math on your iPhone: [Get PayOff Pro for iPhone →][1]
3-day free trial, then $9.99 a year or $2.99 a month. No account required, and your loan stays on your iPhone.
Related articles
- [Rates hit 6.66%: the refinance you can do yourself][6]
- [How to pay off your mortgage early: the only real way][7]
- [Invest or pay off your mortgage? It is more than math][8]
Disclaimer: All figures illustrate a $400,000, 30-year fixed loan at 7.25 percent with no points and at 7 percent with one point costing $4,000. That pricing was chosen for clean arithmetic and is not a quote, because what a point buys varies by lender, loan, and day. Every other closing cost is assumed equal between the two offers, and taxes, insurance, and mortgage insurance are excluded, so the In 5 Years figures on a real Loan Estimate will be higher than the ones shown here. The tax treatment of points is not considered. Prepayment rules and how a servicer applies extra funds vary by lender and loan type, so confirm your extra payment reaches principal. Your terms will differ, so verify every number against your own Loan Estimate before acting. This is educational content rather than personalized financial advice, and I am not a financial advisor. PayOff Pro keeps your data on your device, which means your numbers never reach me or anyone else.
[1]: https://apps.apple.com/app/payoff-pro/id6752794539 [2]: https://www.freddiemac.com/pmms [3]: https://www.bankrate.com/mortgages/mortgage-points/ [4]: https://www.consumerfinance.gov/owning-a-home/compare/compare-loan-estimates/ [5]: https://www.consumerfinance.gov/ask-cfpb/what-is-the-total-interest-percentage-tip-on-a-mortgage-en-2001/ [6]: /blog/rates-hit-666-the-refinance-you-can-do-yourself [7]: /blog/how-to-pay-off-your-mortgage-early-the-only-real-way [8]: /blog/invest-or-pay-off-your-mortgage