What Are VA Loan Discount Points?

Discount points are an optional upfront fee a borrower can pay to lower the interest rate on a mortgage. One discount point typically equals 1% of the total loan amount. Paying points is a way to prepay interest in advance, which can reduce the monthly mortgage payment over the life of the loan.

In VA loans, the choice to use discount points is entirely optional and may depend on how long the borrower plans to stay in the home and their available cash for closing costs.

Reference: VA Lender’s Handbook, Chapter 8, Section 3 (Interest Rate, Discount, and Other Charges).

How Discount Points Work in Practice

Let’s look at a simple example:

  • Loan amount: $300,000

  • No discount points: interest rate = 3.50%

  • Monthly principal & interest payment = about $1,347

If the borrower pays 1% in discount points ($3,000), the rate might drop to 3.25%, lowering the payment to roughly $1,305 — a savings of $42 per month.

To determine whether it’s worth it:

  • $3,000 ÷ $42 = 72 months (6 years) to break even.

That means the borrower would need to keep the loan for at least six years to start saving money overall.

When Paying for Discount Points May Make Sense

Paying for discount points might make sense if:

  • The borrower expects to own the home for many years.

  • They want to lock in a lower rate for long-term affordability.

  • They have extra funds to cover both closing costs and points.

For example, a veteran planning to live in their home for 10+ years might benefit from a lower fixed rate that offsets the upfront cost over time.

When Discount Points May Not Be Worth It

Buying down the rate might not make sense when:

  • The borrower plans to sell or refinance within a few years.

  • Cash is tight at closing.

  • The rate reduction is small compared to the upfront cost.

Discount points are non-refundable, even if the borrower sells or refinances later. Once the loan closes, that prepaid interest cannot be recovered.

Reference: VA Lender’s Handbook, Chapter 8, Section 3 (Prepaid Interest and Discount Points).

VA Loan Rules and Guidelines on Discount Points

The VA allows lenders to charge reasonable discount points if the borrower chooses to pay them voluntarily. These points must reflect actual interest rate reductions — they can’t be used to inflate lender profits.

Seller-Paid Discount Points: The VA permits sellers to cover certain closing costs and up to 4% of the loan amount in seller concessions, which can include discount points. (VA Pamphlet 26-7, Chapter 8, Section 2.d)

Borrowers should always review the Loan Estimate and Closing Disclosure carefully to see how discount points affect the loan terms.

Key Takeaways

  • One discount point = 1% of the loan amount.

  • Paying points can lower your interest rate and monthly payment.

  • You’ll need to stay in the home long enough to break even.

  • Points are non-refundable once paid.

  • Veterans should always compare scenarios with and without discount points before deciding.

Where to Get Trusted Help

If you’re a veteran or VA loan professional, understanding discount points can help you make smarter long-term decisions. For more verified guidance and trusted VA professionals, visit Vetted VA.

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Pay Interest Rates in Advance