When you get a mortgage quote, you’ll often see options like “6.75% with no points” or “6.50% with 1 point.” Points let you pay more upfront to get a lower interest rate. Whether that’s smart comes down to one question: how long will you keep this loan?
What a mortgage point is
One discount point costs 1% of your loan amount, paid at closing. On a $300,000 loan, one point is $3,000. How much each point lowers your rate varies by lender and market, but a reduction of around 0.25 percentage points per point is a common ballpark.
Don’t confuse discount points with origination points, which are a fee for processing the loan and don’t lower your rate. Your Loan Estimate shows both.
How to find your break-even point
Divide the cost of the points by your monthly savings.
Example: $300,000, 30-year fixed.
- 6.75% with no points: about $1,946/month principal and interest
- 6.50% with 1 point ($3,000): about $1,896/month
- Monthly savings: about $50
- Break-even: $3,000 ÷ $50 = 60 months, or 5 years
If you keep the loan longer than five years, buying the point saves money. If you sell or refinance sooner, you’ve lost money on it.
When buying points makes sense
- You plan to stay in the home — and keep this loan — for a long time.
- Rates are unlikely to fall enough to make refinancing attractive soon.
- You have spare cash after your down payment, closing costs, and reserves.
- The seller is offering concessions you can use toward points.
When to skip them
- You might move within a few years.
- You expect to refinance if rates drop.
- The cash would leave you short on your emergency fund.
- A bigger down payment would let you avoid private mortgage insurance (PMI) — that can be a better use of the money.
Points vs. a bigger down payment
If you have extra cash, compare both. Putting it toward the down payment reduces the loan balance and can help you reach 20% down to avoid PMI. On conventional loans, you can generally ask the lender to cancel PMI once you reach 20% equity, and it ends automatically at 22% under federal law. Our guide to saving for a down payment goes deeper.
Tax treatment
Points paid on a mortgage to buy your main home can often be deducted in the year paid if you itemize and meet IRS requirements. Points on a refinance are usually deducted over the life of the loan. See IRS Topic 504 on home mortgage points.
Shopping tips
- Request Loan Estimates from at least three lenders on the same day, with the same loan amount and points, so they’re comparable.
- Ask each lender for pricing at zero, one, and two points.
- Compare APR — it reflects points and fees.
- Watch out for “temporary buydowns” (like 2-1 buydowns), which lower the rate only for the first year or two.
The CFPB’s Buying a House tools explain how to read a Loan Estimate line by line. And if you’re weighing loan types, see fixed vs. adjustable-rate mortgages.
Bottom line
Mortgage points are a bet that you’ll keep your loan past the break-even date. Do the simple division, be honest about how long you’ll stay, and make sure buying points doesn’t leave you cash-poor at closing.
