Should I Pay Points on My Mortgage?
Discount points are prepaid interest: one point costs 1% of your loan amount and typically lowers your rate by roughly 0.25% (the exact reduction varies by lender and market — always compare actual quotes). Whether points are worth it comes down to one calculation: the break-even.
The break-even math
Say you’re borrowing $300,000 and one point ($3,000) drops your rate from 6.75% to 6.50%.
- Payment at 6.75%: about $1,946/month (principal & interest)
- Payment at 6.50%: about $1,896/month
- Savings: ~$50/month
- Break-even: $3,000 ÷ $50 ≈ 60 months (5 years)
Keep the loan past five years and the point pays for itself; sell or refinance sooner and you’ve lost money. Run your own scenario with the loan payment calculator.
When points tend to make sense
- You’re confident you’ll stay in the home (and the loan) well past break-even — often 5–7+ years.
- You have cash beyond your down payment, closing costs, and a healthy emergency fund.
- Rates are such that the buy-down is priced favorably — point pricing varies, and sometimes lenders offer better-than-usual rate reductions per point.
When they usually don’t
- You might move or refinance within a few years. If rates fall meaningfully and you refinance, the points you paid are gone.
- Paying points would drain your reserves. A thin emergency fund after closing is riskier than a slightly higher rate.
- The same cash would do more eliminating PMI by reaching a 20% down payment — compare both paths.
- You’d earn more putting the cash elsewhere (high-yield savings, retirement match).
Watch the fine print
“No-point” loans sometimes hide points in the rate, and advertised rates often quietly assume you’re paying points — check the Loan Estimate, which itemizes points in Section A. Also distinguish discount points from origination points/fees, which are lender charges that don’t reduce your rate.
There’s no universal answer here: points are simply a bet on how long you’ll keep the loan. Make the bet consciously, with the break-even number in front of you, and remember future rates and your own plans are both uncertain.