Mortgage Discount Points: When Buying Points Saves Money
Should you buy mortgage points? Calculate break-even and learn when 1 point (1% of loan) is worth the upfront cost.
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Key Takeaways
- 1One point = 1% of loan amount, typically lowers rate by 0.25%.
- 2Points only save money if you keep the loan past the break-even month.
- 3Break-even = point cost ÷ monthly payment savings.
- 4Skip points if you may sell or refinance within 5 years.
Mortgage points let you buy a lower interest rate by paying upfront. On a $400,000 loan, one point costs $4,000. Whether that is smart depends entirely on how long you keep the loan.
Model both scenarios in our loan comparison calculator.
How Points Work
Each point typically reduces your rate by 0.25%. On $400,000, going from 7.0% to 6.75% saves ~$66/month but costs $4,000 upfront.
Break-even: $4,000 ÷ $66 = 61 months (5 years). Keep the loan longer than 5 years and points pay off.
When to Buy Points
Buy points if: you plan to stay 7+ years, you have extra cash after down payment and closing costs, and the break-even is under your expected timeline.
Skip points if: you might refinance or move within 5 years.
Points vs Larger Down Payment
Extra down payment reduces PMI and loan amount. Points only reduce rate. Compare both uses of $4,000 with your lender.
Read our full mortgage comparison guide.
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