Mortgage Points: Should You Pay to Lower Your Rate?
Last updated: October 2026 · Editorial standards
Mortgage points — also called discount points — let you pay upfront to permanently lower your interest rate. Whether it’s worth doing depends entirely on how long you keep the loan.
What Are Mortgage Points?
One mortgage point equals 1% of your loan amount. Paying points «buys down» your interest rate — typically each point reduces your rate by 0.25%, though this varies by lender and market conditions.
Example on a $350,000 loan:
- 1 point = $3,500
- Rate reduction: approximately 0.25%
- Monthly savings: ~$55/month (on a 30-year loan)
How to Calculate the Break-Even Point
The break-even analysis is the only thing that matters when deciding whether to buy points.
Break-even formula: Cost of points ÷ Monthly savings = Months to break even
Example:
- Cost: $3,500 (1 point)
- Monthly savings: $55
- Break-even: $3,500 / $55 = 63.6 months (~5.3 years)
If you keep the loan for more than 5.3 years, you come out ahead. If you sell, refinance, or pay off the loan before that, you lose money.
Factors That Change the Calculus
How long do you plan to stay? If you’ll likely sell or refinance within 5 years, points rarely make sense. If you’re buying your forever home, points can save substantial money.
What’s your time horizon for refinancing? If rates are high and you expect to refinance in 1–2 years when rates drop, points are wasted — you’ll pay off the lower-rate loan when you refinance.
Can you invest the money instead? $3,500 invested could generate returns. Compare the guaranteed return (mortgage interest saved) against your alternative investment return.
Tax deductibility: Mortgage points are tax-deductible in the year paid (for purchase mortgages, if itemizing). This reduces the effective cost — factor it into your break-even calculation.
When Points Make Sense
- You plan to stay in the home and keep the loan for 7–10+ years
- You have excess cash at closing beyond your down payment and reserves
- You believe rates won’t drop significantly (so no refinancing in sight)
- You itemize deductions and the tax benefit is valuable
When Points Don’t Make Sense
- You plan to sell or refinance within 5 years
- You’re stretching financially to afford the purchase — preserve cash
- Rates are high and likely to drop (buy now, refinance later)
- You have high-interest debt — paying that down delivers a guaranteed return
Negative Points (Lender Credits)
Points work in reverse too. You can accept a higher interest rate in exchange for the lender paying some of your closing costs (lender credits, sometimes called negative points).
Example: Accept a rate 0.25% higher → lender pays $3,500 toward closing costs.
This is useful when you’re short on cash at closing. The tradeoff: higher monthly payment for the life of the loan.
Break-even applies here too: If you sell or refinance quickly, lender credits are a great deal. If you stay for 20 years, you’ll pay significantly more in interest than you saved on closing costs.
Origination Points vs. Discount Points
Don’t confuse discount points with origination fees:
- Discount points: Prepaid interest that buys down your rate. Optional.
- Origination points/fees: Lender compensation for processing the loan. These don’t reduce your rate — they’re just a cost. Sometimes called «loan origination fee» or «origination points.»
Ask your lender to clearly separate these on the Loan Estimate.
How to Compare Lender Offers with Different Point Combinations
When shopping lenders, you may receive quotes with different rates and point combinations. To compare apples-to-apples:
- Calculate APR (annual percentage rate) — this factors in points
- Run the break-even on any points offered
- Choose based on your actual expected hold period
Example: Lender A offers 6.875% with 0 points. Lender B offers 6.5% with 2 points ($7,000). If you’ll keep the loan for only 4 years, Lender A is cheaper. If you’ll keep it for 10 years, Lender B is cheaper.
Key Takeaways
Points are neither good nor bad — they’re a financial tool that benefits buyers with long time horizons. Calculate your personal break-even before deciding, and be realistic about how long you’ll stay in the home.
Frequently Asked Questions
How much does 1 point reduce my interest rate? Typically 0.25%, but this varies. Some lenders offer different point-to-rate trade ratios. Always confirm the exact reduction you’re getting.
Can I buy fractions of a point? Yes. 0.5 points or 1.5 points are common. You don’t have to buy in whole increments.
Are points worth it on a 15-year mortgage? The same analysis applies, but break-even comes faster due to higher monthly payments. Evaluate the same way.
Do points affect my property taxes or insurance? No. Points are a one-time fee that affects only your interest rate and the loan-related costs.
