Mortgage Discount Points: When Buying Points Saves Money
Should you buy mortgage points? How to calculate break-even, when points pay off, and when the same cash is better spent elsewhere.
One point costs 1% of the loan and usually cuts your rate about 0.25% — worth it only if you keep the loan past the break-even, which is often five years or more.
What you'll walk away with
Skim these first — then dig into the details below.
- 1One point equals 1% of the loan amount and typically lowers the rate by about 0.25%.
- 2Points only pay off if you keep the loan past the break-even month.
- 3Break-even = total point cost ÷ monthly payment savings.
- 4Skip points if you may sell or refinance within about five years.
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Buying points is prepaying interest to get a lower rate for the life of the loan. It is a straightforward trade: cash now for a smaller payment later.
Whether it is smart comes down to one variable you control — how long you keep the loan.
How points work
Pricing varies by lender and market, but the structure is consistent.
- One point costs 1% of the loan amount, paid at closing.
- It typically reduces the rate by roughly 0.25%, though this varies.
- You can often buy fractional points, such as half a point.
- Points are a lender fee, so they are included in APR.
Run your break-even
This calculation takes 30 seconds and settles the question.
- 1
Get quotes for the same loan with zero points and with one point.
- 2
Subtract the payment with points from the payment without.
- 3
Divide the point cost by that monthly savings.
- 4
Compare the result in months against how long you honestly expect to keep the loan.
When to buy and when to skip
The decision is mostly about timeline and remaining cash.
- Buy if you plan to stay 7+ years and have cash left after down payment, closing costs, and reserves.
- Buy if rates are historically high and you want protection in case they stay there.
- Skip if you might refinance or move within five years.
- Skip if paying for points would drop your emergency fund below a safe level.
- Skip if the seller is already offering concessions you could apply to a rate buydown instead.
Better uses for the same cash
Points compete against other uses of a few thousand dollars — compare all of them.
- A larger down payment reduces the loan and can eliminate PMI.
- Cash reserves reduce the risk of new debt in year one.
- Paying off a 20% credit card beats a 0.25% rate reduction outright.
- For rate mechanics, see APR vs interest rate and how to compare mortgage loans.
Disclaimer: This page includes AI-assisted educational content reviewed for general accuracy. It is not personalized financial, tax, or legal advice. Verify numbers with a qualified professional and our editorial standards.
Continue reading
Related guides that deepen the same decision.
How to Compare Mortgage Loans: Beyond the Interest Rate
Collect Loan Estimates from at least three lenders on the same day, then compare APR and total cost over how long you will actually keep the loan — not the advertised rate.
ReadDebtAPR vs Interest Rate: What Is the Difference? (With Examples)
The interest rate is the cost of borrowing the principal; APR adds the lender fees on top, which is why APR is the number to compare across offers.
ReadReal EstateWhen To Refinance Your Mortgage: Rules, Math and Break-Even (2026)
Refinance when the rate drop saves enough monthly to recoup your closing costs before you plan to move — usually a 0.75–1% drop with a break-even under 2–3 years.
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