WASHINGTON, DC – The Consumer Financial Protection Bureau (CFPB) today released a new report finding that as overall interest rates rise, more borrowers are paying “discount points” up front. The percentage of homebuyers paying discount points nearly doubled from 2021 to 2023. The increase was even more pronounced among borrowers with lower credit scores. Discount points may benefit some borrowers, but the financial trade-offs are complicated. The CFPB is monitoring these increases and the potential risks to consumers.
“As mortgage rates have risen, borrowers have turned to paying upfront fees to reduce their interest payments,” CFPB Director Rohit Chopra said. “The extensive use of 'discount points' signals that many borrowers are worried about their ability to refinance in the future.”
Discount points are one-time fees paid to a lending institution at closing in exchange for a lower interest rate. Paying one discount point is equivalent to paying a fee of 1 percent of the loan amount, but discount points do not have a fixed value in terms of changes in interest rates. Most borrowers only benefit from discount points if they hold their mortgage long enough that the cumulative monthly savings from a lower interest rate outweigh the upfront costs.
The report released today used quarterly Home Mortgage Disclosure Act (HMDA) data from 2019 through the first three quarters of 2023. According to the report, borrowers with lower credit scores were more likely to pay discount points, and discount points were especially common among Federal Housing Administration (FHA) borrowers with lower credit scores. This indicates that lenders may be using discount points to lower borrowers' monthly payments and debt-to-income ratios. Debt-to-income ratios are one of the metrics lenders use to assess a borrower's ability to repay in order to qualify for a mortgage. About 77% of FHA borrowers with credit scores below 640 purchased discount points, and 65% of all FHA borrowers paid discount points.
Discount points are most common among cash-out refinance borrowers, with 87% of those borrowers paying discount points in September 2023, up from 61% in January 2021. Approximately 61% of home purchase loan borrowers and 58% of non-cash-out refinance loan borrowers also paid discount points in September 2023, up from 31% and 36%, respectively, in 2021. Cash-out refinance borrowers are paying more discount points. The median discount points in the 2023 quarterly data were 2.1 points for cash-out refinance loans, 1.1 points for non-cash-out refinances, and 1.0 point for home purchase loans.
HMDA data is the most comprehensive source of publicly available information on the U.S. mortgage market. In addition to submitting annual application-level data, the largest mortgage lenders are required to submit HMDA data to regulators on a quarterly basis. Aggregate statistics from the quarterly data are publicly available in the HMDA Quarterly Graph.
Read the report “Trends in Discount Points as Interest Rates Rise.”
The CFPB has resources about mortgages, including answers to frequently asked questions about discount points: Consumers can file complaints about mortgages and other financial products and services by visiting the CFPB's website or calling (855) 411-CFPB (2372).
Employees of companies who believe their company may be violating federal consumer financial laws are encouraged to submit any information they know to whistleblower@cfpb.gov.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces federal consumer financial laws and ensures that the market for consumer financial products is fair, transparent, and competitive. For more information, visit www.consumerfinance.gov.