How many discount points are needed to raise a lender’s yield by 1%?

To determine how many discount points are needed to raise a lender’s yield by 1%, it is important to understand the relationship between discount points and yield. Typically, for every 1% increase in yield, a lender requires approximately 8 discount points. This is based on standard mortgage industry practices.

Discount points are fees paid directly to the lender at closing in exchange for a reduced interest rate. One point is equal to 1% of the loan amount. When a borrower pays discount points, they are essentially prepaying interest, which increases the lender's yield on the loan.

Therefore, in this calculation, raising the yield by 1% correlates to needing about 8 discount points. This relationship helps both lenders and borrowers negotiate terms based on how much upfront cost a borrower is willing to pay for better loan terms, ultimately leading to lower monthly payments or a more favorable loan structure.

This foundational knowledge is crucial for real estate professionals in Florida, as it impacts how they guide their clients through the mortgage process and help them understand the financial implications of different loan options.