Are Mortgage Points Worth Buying?
Discount points buy a lower rate for cash up front. The whole decision comes down to one number — your break-even point. Here's how to find it.
Buying mortgage points is worth it when you keep the loan long enough to recover the upfront cost — and not a day less. Discount points are prepaid interest: you hand the lender cash at closing to buy down your rate, and the only question that matters is how many months it takes the lower payment to pay you back.
One point costs 1% of your loan amount and typically lowers your rate by about 0.25 percentage points, though the exact buy-down varies by lender and market.
What a point actually buys
On a $300,000 loan, one point costs $3,000. In exchange, a 6.75% rate might drop to 6.50%. That is real money on both sides of the ledger:
| No points | One point | |
|---|---|---|
| Rate | 6.75% | 6.50% |
| Upfront cost | $0 | $3,000 |
| Monthly P&I | $1,946 | $1,896 |
| Monthly savings | — | ~$50 |
Fifty dollars a month is not dramatic, which is exactly why points reward patience. Model your own buy-down with the Mortgage Points Calculator and check the resulting payment in the Mortgage Calculator.
The break-even math
Divide what you paid by what you save each month. That is your break-even point — the moment the points start making you money:
$3,000 ÷ $50 per month = 60 months
Stay in the loan past five years and every month afterward is pure savings. Sell, refinance or pay off before then and you have lost money. Here is how break-even shifts with the size of the purchase on that same $300,000 loan:
| Points bought | Upfront cost | Rate | Monthly savings | Break-even |
|---|---|---|---|---|
| 0 | $0 | 6.75% | — | — |
| 1 | $3,000 | 6.50% | ~$50 | ~60 months |
| 2 | $6,000 | 6.25% | ~$99 | ~61 months |
| 3 | $9,000 | 6.00% | ~$148 | ~61 months |
Notice the break-even barely moves as you buy more points — the cost and the savings scale together. The real lever is how long you’ll hold the loan, not how many points you stack.
When points pay off
Points reward people who stay put. Consider buying them if:
- You plan to keep this mortgage well beyond the break-even — a long-term home you won’t sell or refinance soon.
- Rates are already low and unlikely to fall enough to make refinancing attractive, so the buy-down is locked in for the long haul.
- You have spare cash at closing that isn’t needed for reserves or a larger down payment.
The longer your time horizon past break-even, the better the return. Hold a loan 15 years on a 5-year break-even and you collect a decade of savings on a one-time cost.
When to skip them
Walk away from points if:
- You might move or refinance within a few years. The most common way buyers waste point money is selling before break-even.
- The same cash as a larger down payment would cut PMI or improve your loan terms more.
- You are short on closing funds. Liquidity in the bank usually beats a slightly lower rate.
If there is any real chance you’ll refinance, price that scenario first with the Mortgage Refinance Calculator — a future refi can erase the benefit you paid for.
The tax angle, briefly
Discount points are a form of prepaid mortgage interest, so they may be tax-deductible. On a purchase of your primary home, points are often deductible in the year you pay them if you itemize and meet IRS conditions; on a refinance, the deduction is usually spread across the life of the loan. The deduction softens the cost a little, but it should never be the reason you buy — confirm specifics with a tax professional.
The decision rule
Calculate your break-even, then ask one honest question: will I keep this exact loan longer than that? If yes, points are a sensible way to lock in savings. If you can’t say with confidence that you’ll hold past break-even, keep your cash — the flexibility is worth more than the quarter-point.
Are lender credits just points in reverse? Essentially, yes — you accept a slightly higher rate in exchange for the lender covering some closing costs. They suit short-term holders, the mirror image of who should buy points.
Do points change my loan balance? No. They are paid in cash at closing on top of your costs; they don’t roll into the amount you borrow unless you specifically finance them.
Frequently asked
How much does one mortgage point cost?
One point costs 1% of your loan amount and typically lowers your rate by about 0.25 percentage points, though the exact buy-down varies by lender and market.
On a $300,000 loan, one point costs $3,000 and might drop a 6.75% rate to 6.50%, saving roughly $50 a month on principal and interest. Points are prepaid interest paid in cash at closing.
How do I calculate the break-even point on mortgage points?
Divide what you paid by what you save each month. Paying $3,000 for a point that saves $50 monthly gives a break-even of 60 months, so every month past five years is pure savings.
Sell, refinance, or pay off before then and you've lost money. Break-even barely moves as you buy more points, because cost and savings scale together.
When are mortgage points worth buying?
Points are worth it when you'll keep the exact loan well beyond the break-even, since holding a loan 15 years on a 5-year break-even collects a decade of savings on a one-time cost. They suit long-term homes with spare cash at closing.
Skip them if you might move or refinance within a few years, or if the cash would cut PMI as a larger down payment.
This article is for general educational purposes and is not financial advice. Confirm specifics with a licensed lender or advisor.