Are Mortgage Points Worth Buying?

At closing, your lender will offer you the option to “buy points” — pay extra upfront to lower your interest rate for the life of the loan. Sometimes it’s a great deal. Sometimes it isn’t. The deciding factor is exactly one number, and most buyers never calculate it.

What discount points actually are

One discount point equals 1% of the loan amount, paid at closing, in exchange for a permanent rate reduction. The rate reduction varies by lender and market conditions, but the rule of thumb is approximately 0.25 percentage points per pointpurchased. So on a $300,000 loan, one point costs $3,000 and might drop a 6.5% rate to about 6.25%.

Lenders also sell fractional points (half-points, quarter-points) and offer "negative points" or lender credits where you take a higher rate in exchange for a credit toward closing costs. The math below applies in all directions.

The break-even formula

Buying points is a bet on how long you’ll keep the loan. The question is: does the monthly savings, multiplied by the months you stay in the loan, exceed what you paid for the point?

Break-even months = upfront point cost ÷ monthly savings from lower rate

A worked example

Say you have:

• Loan: $300,000, 30-year fixed
• Rate without points: 6.5% → monthly P&I = $1,896
• Buy 1 point ($3,000): rate drops to 6.25% → monthly P&I = $1,847
• Monthly savings: $49

Break-even = $3,000 ÷ $49 ≈ 61 months, or about 5 years. If you keep this loan more than 5 years, the point pays off and every additional month is pure savings. If you sell or refinance before 5 years, you took a small loss.

Compare that to 2 points: $6,000 upfront, rate drops to ~6.0%, P&I = $1,799, monthly savings $97. Break-even ≈ 62 months — almost identical. The break-even is fairly stable across point counts because the rate-reduction-per-dollar is roughly constant.

Four scenarios where points pay off

1. You’re sure you’ll keep the loan past break-even. Long-term homeowners with no plans to move and a stable rate environment.
2. The seller is paying. In many transactions, sellers offer "rate buydowns" (often 2-1 or 3-2-1 buydowns) as a concession. Free points are always worth taking.
3. You can’t qualify at the higher payment. If buying a point is what gets your DTI under the lender’s ceiling, the point is doing real work — it’s the difference between getting the loan and not.
4. You expect rates to fall but want optionality. A point shrinks your payment now, and if rates fall enough later, you’ll refinance and the unused future savings of the point die — but you got a lower payment in the meantime. Edge case.

Four scenarios where points are a bad idea

1. You might move within the break-even window. If there’s any meaningful probability you’ll be gone in 3–5 years (job change, family change, upgrade), points are negative expected value.
2. You expect to refinance soon. If rates drop materially, you’ll refinance and the point is gone. Don’t buy a long-term reduction you won’t use.
3. You’re short on cash for closing or reserves. Points compete with your down payment, your emergency fund, and your closing costs. Don’t empty an already-thin reserve to buy a marginal rate reduction.
4. The point cost is unusually high. If a lender quotes a rate reduction smaller than ~0.20% per point, you’re getting a bad deal. Shop the same loan with another lender; you should be able to find a better rate per dollar.

The hidden tax angle

For loans on a primary residence, discount points are generally tax-deductible as mortgage interest — sometimes deductible in full in the year of purchase (if certain IRS conditions are met), or amortized over the life of the loan (always allowed). This shifts the break-even math in your favor at higher tax brackets. At a 24% marginal rate, a $3,000 point effectively costs $2,280 after deduction, which moves break-even from 61 months to about 47.

Caveat: itemized deductions only pay off if your total itemized deductions exceed the standard deduction. After the 2017 tax law, most filers take the standard deduction and don’t benefit. Run the numbers for your situation.

Decision checklist

1. Get the rate quote with 0 points and at least one quote with 1–2 points.
2. Compute monthly savings: payment without points − payment with.
3. Divide point cost by monthly savings → break-even months.
4. Estimate honestly: will you keep this loan that long?
5. If yes, buy the point. If no, don’t.

Run your own numbers

Compare two scenarios side by side in our mortgage calculator — enter the loan twice with different rates and watch the monthly payments and total interest change. For refinancing decisions where points often appear, see our refinance break-even calculator.

Already comparing 15-year and 30-year terms? See 15-year vs 30-year mortgage for that piece of the puzzle.