Discount Points vs. Origination Points: What Is the Difference?

Points are upfront fees equal to 1% of your loan amount. But not all points are the same. Discount points lower your interest rate. Origination points are a lender charge for processing the loan. Knowing the difference helps you evaluate loan offers.

Discount Points

Discount points are optional. You choose to pay them to buy down your interest rate. Each point typically reduces your rate by 0.25%. The decision is a break-even calculation: does the monthly savings from the lower rate justify the upfront cost?

Origination Points

Origination points are a fee the lender charges to process and underwrite the loan. They do not lower your rate. They are a cost of doing business with that lender.

How to Tell Them Apart

On your Loan Estimate, look at the Loan Costs section:

• •Section A — origination charges, including origination points
• •Section B — services the lender requires, like appraisal
• •Discount points appear in Section A as a line item labeled "Discount Points"

Which Can You Negotiate?

• •Origination points — yes. Different lenders charge different amounts. Compare Loan Estimates.
• •Discount points — the rate reduction is somewhat standardized, but you can choose zero points, one point, or more depending on your goals.

Tax Treatment

Discount points may be deductible as mortgage interest in the year paid (or amortized over the loan term if refinancing). Origination points for a purchase may also be deductible. Consult a tax professional for your situation.

Key Takeaways

• •Discount points lower your rate; origination points are a lender fee
• •Both cost 1% of the loan amount
• •Origination points are negotiable — compare lenders
• •Discount points are optional — calculate the break-even before buying