ELI5: What are mortgage points?

12 views Dec 9, 2025 2 min read

Imagine you want to buy a really cool toy, like a super-powered bike. But you don't have enough money right now, so your parents help you by borrowing money from the Bank of Toyland. This loan from the bank is like a mortgage.

The bank will let you pay them back a little bit each month. But, to let you borrow the money, the bank might say, "Okay, we'll lend you the money, but you have to pay us a little extra now to get a lower monthly payment later."

These little extra payments now are like mortgage points.

  • Think of it this way:
One point is usually 1% of the total amount of money you're borrowing for the bike. So, if the bike costs $100, and you borrow $100 from the bank, one point would cost you $1. If you pay that $1 now, the bank might lower your monthly payment a tiny bit. You can buy more than one point! If you buy two points, you pay $2 now, and your monthly payment gets even lower.
  • Buying points is like getting a discount now to save money each month later.
  • It's like choosing between:
Paying a little more now (buying points) for smaller monthly payments. Or, not paying extra now (not buying points) and having slightly bigger monthly payments.

It's up to your parents to decide if paying extra now is worth it to save money later!

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