What are points?

A point is short for a percentage point of the loan amount (1 point on $100,000 = $1,000). A point is a cost that needs to be paid to the bank or lender to receive financing under specific terms. Typically when someone refers to paying “points” they are referring to discount points. Discount points are costs paid to the bank or lender to buy down the rate below the “par” rate. “Par” is the lowest interest rate available for a particular time period so if a lower than “par” rate is desired, then discount points have to be paid to the bank or lender.