the short version
- a discount point costs about 1% of your loan and lowers your rate by roughly 0.25% — you're pre-paying interest to save monthly.
- whether it pays off is one calculation: the break-even point = cost of points ÷ monthly savings. that's how many months until you come out ahead.
- keep the loan past break-even and points win; sell or refinance before it and you lost money.
- don't confuse discount points (buying down your rate) with origination points (a lender fee for making the loan).
what a 'point' actually is
When you get a mortgage, the lender offers a menu: take the standard rate, or pay extra upfront to lower it. That upfront payment is a discount point.
The rough convention: one point costs 1% of your loan amount and lowers your interest rate by about 0.25%. On a $300,000 mortgage, one point is $3,000, paid at closing, in exchange for a permanently lower rate for the life of the loan.
You're essentially pre-paying interest — spending money now to spend less every month after. Whether that's brilliant or wasteful depends entirely on one thing: how long you keep the loan.
the only calculation that matters
Points are worth it if — and only if — you keep the mortgage long enough for the monthly savings to exceed what you paid upfront. That tipping point is the break-even, and the math is simple:
break-even formula
Cost of the points ÷ monthly savings = months to break even
Example: you pay $3,000 for a point that saves you $45/month. $3,000 ÷ $45 ≈ 67 months, or about 5.5 years. Keep the loan longer than that and every month after is pure savings. Sell or refinance before it, and you paid $3,000 to save less than $3,000 — a loss.
So the real question points force you to answer honestly is: how long will I actually keep this exact loan? Not the house — the loan. Because refinancing later resets everything.
when points make sense (and when they don't)
| points probably worth it if... | probably not if... |
|---|---|
| you'll stay in the home long-term | you might move in a few years |
| you'll keep this loan past break-even | you're likely to refinance soon |
| you have cash beyond your down payment & emergency fund | buying points would drain your reserves |
| rates are unlikely to drop enough to refinance | rates may fall and make refinancing attractive |
That last row matters in a shifting-rate environment: if you buy points and then rates drop enough that you refinance, you never reached break-even on the points — you paid for a lower rate you abandoned. When the future of rates is uncertain, that risk argues for caution.
the cost you're not counting
One more angle the lender won't raise: opportunity cost. That $3,000 for a point isn't free money — it's money that could have gone somewhere else.
It could be a bigger down payment (lowering your loan and possibly avoiding mortgage insurance), an emergency fund, or invested (see where to actually put your money). Buying points only makes sense if the guaranteed monthly savings, over the time you'll keep the loan, beats what that same cash would do elsewhere.
And keep the two kinds of "points" straight: discount points buy down your rate (the subject here). Origination points are simply a lender's fee for making the loan — a cost, not an investment in a lower rate. Read the loan estimate carefully so you know which you're being charged.
before you decide
Ask the lender for two full loan estimates — one with points, one without — and compare the total cost over the years you realistically expect to keep the loan. If they won't run both, that itself is worth noting. This is your money and your math; make them show it.
questions people actually ask
are mortgage points tax-deductible?
Discount points can sometimes be deductible as mortgage interest, but the rules are specific (primary residence, itemizing, and other conditions). Treat any tax benefit as a possible bonus to confirm with a tax professional, not a reason on its own to buy points — the break-even math should stand up without it.
what's a 'negative point' or lender credit?
The reverse of a discount point: the lender gives you money toward closing costs in exchange for a higher rate. It can make sense if you're short on cash at closing or plan to keep the loan only briefly — you take the higher rate because you won't hold it long enough for the extra interest to add up. Same break-even logic, flipped.
how do i know how long i'll keep the loan?
You don't, exactly — which is the honest heart of the decision. Base it on realistic life plans (job stability, family, how long you intend to stay in the home) and on rate expectations. When genuinely uncertain, the conservative choice is usually fewer or no points, since points only pay off with time and certainty.
should i buy points or make a bigger down payment?
Often the bigger down payment is the stronger move: it lowers your loan balance, can help you avoid private mortgage insurance (a real monthly cost), and reduces total interest — sometimes with a better overall return than points. Run both scenarios in the lender's loan estimates and compare total cost over your expected time in the loan.
where these numbers come from
- The ~1% cost per point / ~0.25% rate reduction convention and break-even method are standard mortgage-lending guidance; exact point pricing varies by lender and loan.
- For definitions of discount vs. origination points and current rules, see the CFPB's mortgage resources at consumerfinance.gov.