Understanding Mortgage Points: Should You Buy Them Down?
Confused about mortgage points? Here's how they work, when buying them actually makes sense, and how to run the breakeven math before you commit.
Shop for a mortgage long enough and a lender will offer to sell you "points." It sounds like jargon, but the concept is simple: you pay money upfront in exchange for a lower interest rate. The real question is whether that trade is worth it for you - and that comes down to one calculation.
What Are Mortgage Points?
Mortgage points (also called discount points) are upfront fees paid to your lender in exchange for a lower rate.
- 1 point = 1% of your loan amount
- Each point typically lowers your rate by about 0.25% (varies by lender)
Example: on a $300,000 mortgage, 1 point costs $3,000 and might drop your rate from 6.5% to 6.25%.
What That Does to Your Monthly Payment
Here's the same $300,000 loan side by side:
| Scenario | Rate | Monthly Payment | Total Interest (30 Years) |
|---|---|---|---|
| No Points | 6.5% | $1,896 | $382,633 |
| 1 Point | 6.25% | $1,847 | $365,582 |
You pay $3,000 upfront and save $49 a month - over $17,000 in total interest across the full 30 years.
The breakeven lands around 5 years. Stay in the home longer than that and the savings keep stacking up. Sell or refinance sooner and you've overpaid.
When Does It Make Sense to Buy Points?
Points are worth considering if you plan to stay in the home long-term, have spare cash beyond your closing costs, and want the lower monthly payment.
Skip them if you're likely to move or refinance within a few years, if you're already stretching to cover closing costs, or if you qualify for a low-rate loan without them (VA, FHA, etc.). Points are a bet on staying put - don't make that bet with money you need elsewhere.
How to Calculate Your Breakeven Point
One formula does it:
Cost of Points / Monthly Savings = Breakeven in Months
Using our example: $3,000 / $49 = roughly 61 months, or about 5 years.
If you honestly can't say how long you'll keep this mortgage, that uncertainty is itself an answer - probably don't buy the points.
Are Points Tax-Deductible?
Often, yes. Mortgage points may be deductible as mortgage interest, typically when the loan is used to buy or build your main home. The catch: you have to itemize your deductions to claim them. Worth a conversation with your tax advisor before you count on it.
Getting the Best Deal on Points
A few things worth doing before you commit. Compare lenders - the rate reduction per point isn't standardized, and some offer noticeably better deals. Ask each lender to quote scenarios with and without points so you can see the actual numbers. And negotiate; some lenders will offer partial credits toward points. If cash is tight, remember that taking the higher rate and keeping your reserves is a perfectly valid choice.
The Bottom Line
Buying points can genuinely save you money - if you'll stay put long enough and can afford the upfront cost without straining. That's the whole equation.
Before you sign: run the breakeven math, ask your lender to show you the analysis, and weigh the cost against your other closing expenses and savings goals. The right move is the one that fits your timeline and cash flow, not just the lowest rate on paper.