Enter the total loan amount into the calculator to determine the value of one discount point. Note: the loan amount should be only the total value of the loan, not the purchase price.

## Discount Point Formula

The following formula is used to calculate a discount point.

DP = .01 * LA

• Where DP is the discount point (\$)
• .01 is the decimal representing 1%
• LA is the total loant amount (\$)

## Discount Point Definition

A discount point is a term used in real estate to define the value of 1% of a loan amount. These are often used in negotiations for purchasing houses.

For example, a mortgage broker may offer a lower interest rate at the exchange of purchasing a few discount points.

## How to calculate discount points?

In this example, a buyer is purchasing a home and negotiates a lower interest rate at the exchange of the purchase of some discount points.

First, determine the total loan amount. For this problem, the house is purchased at \$500,000.00 with a \$100,000.00 down payment.

Subtracting the downpayment from the purchase price we get a total loan amount of \$400,000.00.

During the negotiation, it’s agreed the buyer will purchase 3 discount points for a lower interest rate.

Finally, calculate the value of the discount points purchase above.

DP = .01 * LA

= .01 * 400,000 = \$4,000.

Now, multiply this answer by 3 to get the total spent on discount points.

= 3 * \$4,000

= \$12,000.00