Paying 'points' to lower your mortgage rate can save thousands — or cost you money if you sell too soon. Here is the math to decide exactly when buying points makes sense.
Paying 'points' to lower your mortgage rate can save thousands — or cost you money if you sell too soon. Here is the math to decide exactly when buying points makes sense.
What Are Mortgage Points?
Mortgage discount points are upfront fees you pay to permanently lower your interest rate. One point equals 1% of the loan amount. One point typically buys down the rate by approximately 0.25% (though this varies by lender and market conditions).
Example: On a $350,000 loan, 1 point = $3,500 upfront. In exchange, rate drops from 6.82% to approximately 6.57%. Monthly savings: ~$55/month.
Break-Even Analysis
Points only make sense if you keep the loan long enough to recoup the upfront cost:
Points Paid
Cost ($350K)
Rate Reduction
Monthly Savings
Break-Even
0.5 point
$1,750
~0.125%
~$27/mo
~65 months (5.4 yr)
1 point
$3,500
~0.25%
~$55/mo
~64 months (5.3 yr)
2 points
$7,000
~0.5%
~$109/mo
~64 months (5.3 yr)
3 points
$10,500
~0.75%
~$164/mo
~64 months (5.3 yr)
When Buying Points Makes Sense
You plan to stay in the home for 7+ years (well past break-even)
You have extra cash at closing beyond what's needed for reserves
Tax deductibility matters (points on purchase loans are fully deductible in year paid)
You're on a fixed income and the lower payment significantly reduces stress
When to Skip Points
You might sell or refinance within 5 years
You need the cash for reserves, emergency fund, or other investments
Rates are expected to fall (you'd refinance anyway)
The monthly savings are minimal (under $50/month for most buyers)
Points vs No Points — Total Cost Comparison
On $350,000, 30 years: No points at 6.82% = Total interest $476,774. 2 points ($7,000 upfront) at 6.32% = Total interest $438,921. Net savings after points cost = $38,000+ if you keep the full loan. If you sell after 5 years, you've paid $7,000 for $6,540 in savings — a net loss.
Frequently Asked Questions
Points are worth it if you stay past break-even (typically 5–7 years for 1 point). At current rates (~6.82%), buying 1 point on a $350,000 loan costs $3,500 and saves ~$55/month — break-even in about 64 months. If you stay 10+ years, you'd save $3,000+ beyond the cost. If rates are expected to fall and you'd refinance in 2–3 years, points are rarely worth it.
Points paid on a home purchase mortgage are deductible in full in the year paid, if they meet IRS criteria (primarily that they represent genuine prepaid interest, not fees). Points on refinance loans must be amortized over the loan life. Origination points (lender fees disguised as points) are not deductible. Consult a tax professional.
Disclaimer: Smart Mortgage Guide provides educational content only. We are not a licensed mortgage lender, broker, or financial advisor. Rates, limits, and program details are subject to change. Always consult with a licensed mortgage professional before making financial decisions.