Also known as discount points, this is a one-time fee or prepaid interest borrowers purchase to lower the interest rate for their mortgage. Each discount point costs 1% of your mortgage amount, or $1,000 for every $100,000 and will lower the rate by a quarter of a percent, or 0.25. For example, if the interest rate is 4%, purchasing one mortgage point will reduce the rate to 3.75%, which can save a significant amount of interest expense in your monthly mortgage payment and over the life of the loan.