Run your own numbers before reading my story
Try the Mortgage Points Calculator →A loan officer once handed me a sheet of numbers and asked if I wanted to "buy down my rate." Nobody explained what that actually meant in plain terms, or what would make it a good idea versus a waste of money. I said no at the time — mostly because I didn't understand it well enough to say yes with confidence. Looking back, that uncertainty is exactly the gap this post is meant to close.
Mortgage points are worth it only if you keep the loan past your break-even point — the month your accumulated monthly savings finally exceed what you paid upfront. Sell or refinance before then, and you lose money on the purchase.
Mortgage points are worth it if you plan to keep the loan long enough for your monthly savings to exceed what you paid upfront — and not worth it if you don't. That's the entire decision, but "long enough" depends on your specific numbers, not a rule of thumb, which is exactly why generic advice on this topic tends to be unhelpful.
One discount point costs about 1% of your loan amount and typically lowers your rate by roughly 0.25% — though both figures vary by lender. On a $400,000 loan, one point costs $4,000 upfront.
One discount point typically costs 1% of your loan amount and lowers your interest rate by roughly 0.25%, though both numbers vary by lender and market conditions. On a $400,000 loan, one point costs $4,000 upfront in exchange for a lower rate for the life of the loan.
Your monthly principal and interest payment is calculated as:
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Buying a point changes only r in this formula — a lower rate reduces every monthly payment for the life of the loan, which is exactly why the savings compound the longer you keep it.
Every point purchase has a break-even point — the number of months where your accumulated monthly savings finally equal what you paid upfront. Before break-even, you're behind. After break-even, you're ahead for as long as you keep the loan. Sell the house, refinance, or pay it off before reaching that point, and the points purchase was a net loss, regardless of how much lower your rate was.
On a $400,000 loan at 6.75% with no points, the monthly principal and interest payment is about $2,594. Buying one point for $4,000 might drop the rate to 6.5%, bringing the payment to roughly $2,528 — a savings of about $66/month. At that pace, break-even lands around 5 years. Keep the loan 7+ years, and the point was worth it. Move or refinance in year 3, and you're out the difference.
Here's the question rarely asked in typical points advice: what else could that $4,000 have done? If invested instead at a reasonable long-term return, that same cash could grow meaningfully over the years you'd otherwise spend waiting to break even on the rate reduction. Sometimes the guaranteed rate reduction still wins. Sometimes the math favors investing instead. The only honest way to know is running both numbers side by side for your actual situation — which is exactly why we built a calculator that does both at once instead of just the break-even math alone.
Often yes, in the year paid or amortized over the life of the loan, depending on whether it's a purchase or refinance and other IRS rules. Talk to a tax professional about your specific situation before assuming a deduction applies.
Discount points buy down your interest rate — the topic of this article. Origination points (or an origination fee) are a separate charge covering the lender's cost of processing your loan and don't affect your rate at all.
Point pricing is generally less negotiable than fees like origination charges, since it's tied to market rate sheets. That said, getting quotes from multiple lenders can reveal meaningfully different point pricing for the same rate reduction — worth comparing before committing.
Generally no — if you already expect to refinance within a few years, you likely won't reach break-even on points bought today, making the upfront cost a near-guaranteed loss.
The mechanics are identical, but it's worth being especially honest about your realistic hold period on a refinance, since you're already resetting the loan and might do so again if rates move favorably in the future.
Most lenders cap this around 3-4 points, and certain loan programs — particularly FHA and VA loans — have specific limits on how much of your closing costs can come from points and lender credits combined.
Run your own numbers — including the investment comparison
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