When you're getting a mortgage, your lender may offer you the option to "buy down" your interest rate by paying mortgage points (also called discount points) at closing. This is essentially prepaying interest upfront in exchange for a lower rate for the life of the loan. But whether points are worth buying depends entirely on one calculation: how long you'll stay in the home.
What Are Mortgage Points?
One mortgage point equals 1% of your loan amount. On a $300,000 loan, one point costs $3,000. Each point typically reduces your interest rate by approximately 0.25%, though this varies by lender and market conditions.
You can buy fractions of a point (e.g., 0.5 points = $1,500 for ~0.125% rate reduction) or multiple points. Most transactions involve 0–3 points.
Types of Points: Discount Points vs Origination Points
These two terms are often confused — and they serve different purposes:
- Discount points: Optional — you pay these to buy down your interest rate. They're your choice.
- Origination points (or origination fee): The lender's charge for processing your loan. Not optional, but negotiable. This is compensation to the lender, not a rate buydown.
When evaluating a loan offer, check the Loan Estimate carefully. Origination fees that look like points don't lower your rate — they're just lender profit.
The Break-Even Calculation: When Points Pay Off
The fundamental math for deciding whether to buy points:
Break-even months = Point cost ÷ Monthly savings
Here's a real example on a $300,000, 30-year mortgage:
| Scenario | Rate | Monthly Payment | Points Cost | Monthly Savings | Break-Even |
|---|---|---|---|---|---|
| No points | 6.75% | $1,946 | $0 | — | — |
| 1 point | 6.50% | $1,896 | $3,000 | $50/mo | 60 months (5 years) |
| 2 points | 6.25% | $1,847 | $6,000 | $99/mo | ~61 months |
| 0.5 points | 6.625% | $1,921 | $1,500 | $25/mo | 60 months (5 years) |
The pattern is clear: buying 1 point on a $300,000 loan requires approximately 5 years in the home before you break even. If you sell or refinance before month 60, you paid $3,000 upfront and saved less than that.
See Exactly How Much a Lower Rate Saves You
Use our calculator to compare your total interest cost at 6.75% vs 6.50% — and decide if paying points makes sense for your situation.
Compare Rates →When Buying Points Makes Financial Sense
Points are worth buying when all three conditions are true:
- You'll stay in the home long-term. If you're buying a home you plan to live in for 10+ years, points almost always pay off. The longer you stay past break-even, the more you save.
- You have the cash. Using savings to buy points — rather than adding to your down payment — only makes sense if you've already reached 20% down (to avoid PMI) and have adequate reserves. Never borrow to buy points.
- You won't refinance before break-even. Refinancing resets the clock — you pay closing costs again and lose any points benefit from the original loan. If rates might drop significantly and you'd likely refinance within 5 years, skip the points.
When Points Are NOT Worth Buying
- You plan to sell within 5 years. Starter homes, job relocations, and growing families create real uncertainty about how long you'll stay. If there's meaningful chance you leave before break-even, points are a bad bet.
- You need cash reserves. Using $6,000 to buy 2 points when your emergency fund is thin leaves you financially vulnerable. Reserves matter more than rate optimization.
- Rates are expected to fall significantly. If you anticipate refinancing within 3 years to a lower rate, the point investment is wasted — you'll pay closing costs again on the refi and the points carry over to nothing.
- You're carrying high-interest debt. Paying off a credit card at 20% APR delivers a guaranteed 20% return. Buying mortgage points at 6.75% to save 0.25% can't compete with that math.
Are Mortgage Points Tax Deductible?
In the United States, mortgage discount points may be tax deductible in the year paid (for a primary residence purchase) if certain IRS conditions are met. Key rules:
- Points must be computed as a percentage of the loan amount
- Points must be an established business practice in your area
- Points cannot exceed the amount generally charged in your area
- The loan must be secured by your primary residence
- You must use the cash method of accounting
For refinances, points are typically deducted over the life of the loan (not all in year 1). Always consult a tax professional to determine your specific deductibility situation — tax law changes frequently and individual circumstances vary.
Negative Points: Getting a Lender Credit
The reverse also exists: you can accept a higher interest rate in exchange for a lender credit toward closing costs. This is called "negative points" or a "yield spread premium."
Example: Accept 7.00% instead of 6.75%, and the lender credits you $3,000 toward closing costs. This can be useful if you're cash-constrained at closing — but it costs you $50+/month in higher payments for the life of the loan.
Use the same break-even math: divide the credit received by the extra monthly cost to find how many months until the higher rate has cost you more than the credit was worth.
How to Evaluate Points in a Loan Estimate
When comparing Loan Estimates from multiple lenders, look at Section A ("Origination Charges") to see how points are priced. Then compare APR (Annual Percentage Rate) across lenders — APR includes points and fees, making it a better apples-to-apples comparison than the stated interest rate alone.
A lender offering 6.50% with 1 point may have a higher APR than a lender offering 6.75% with no points — meaning the "lower rate" option actually costs more over the loan's life if you stay a short time.
The single most important factor in the points decision: how long will you actually stay in this home? Be honest with yourself — most people overestimate their certainty.