A credit towards your closing costs in exchange for a higher interest on your loan.

You can change your loan's interest rate based on how many points you either pay (called discount points) or receive (rebate points). Each rebate point, which is equal to 1% of the loan amount, will increase your interest rate by about .25%. So, if you opt for one rebate point on a $100,000 loan with an 8% market rate, you'd get $1,000 towards your closing costs and your new interest rate would be 8.25%.

Note that you can't pocket the cash from rebate points. You can only use them towards your non-recurring closing costs, including your appraisal, property inspection, title insurance and lender/broker origination fees. Rebate points don't cover your prepaid interest, hazard insurance, Private mortgage insurance (PMI) and impounds.

Example: How can rebate points affect a $100,000 fixed rate loan?

		Rebate points	Resulting interest rate	Amount towards closing costs	Monthly payment
		0	7.625%	$0	$708
		-1	7.875%	$1,000	$725
		-2	8.125%	$2,000	$743

See: Point, Closing costs
Compare: Discount point