Points

Points — discount points function as prepaid interest. By paying one or more points at closing, a borrower secures a lower interest rate for the life of the loan. For example, on a $200,000 mortgage, one point costs $2,000 and might reduce the rate by roughly 0.25%. The breakeven point — when the monthly savings from the lower rate offset the upfront cost — typically falls several years into the loan term.

In the secondary note market, points paid at origination affect the loan's contract rate but do not directly change the note's value to a subsequent purchaser. What matters to the investor is the current interest rate, remaining balance, and payment performance. Still, reviewing whether points were paid at origination can provide useful context about the borrower's financial profile and the original loan terms during collateral file review.