What is the approximate number of discount points required to raise the lender's yield on a mortgage by 1%?

To understand the concept of discount points and their effect on a lender's yield, it's important to recognize that discount points are upfront fees paid at closing that can lower the interest rate on a mortgage. Typically, one discount point equals 1% of the loan amount and generally reduces the interest rate by a fixed amount, often around 0.25% per point.

When calculating how many discount points are needed to raise a lender's yield by a certain percentage, it's commonly accepted that to achieve an increase of 1% in yield, a borrower might need to pay around 8 points. This is related to the trade-off between the upfront costs (points) and the long-term interest rate savings. Each mortgage situation can vary due to market conditions, so while the precise number may fluctuate, the extrapolation shows that raising the yield significantly requires a larger investment in points.

Therefore, to effectively increase the lender’s yield by 1%, it typically necessitates a substantial amount of discount points, thereby making 8 points the appropriate approximation in this context.