Should You Buy Mortgage Points? How to Calculate Your Break-Even
Some links are affiliate links; we may earn a commission at no extra cost to you.
What discount points are, how to work out whether paying them saves money, and when lender credits make more sense, with examples at this week's rates.
When you compare mortgage offers, you'll often see the same loan quoted several ways: one rate with no points, a lower rate with a point or two, and sometimes a higher rate with a credit toward your closing costs. These choices let you trade cash today for a lower payment later, or the reverse. Picking the right one comes down to a simple calculation and an honest guess about how long you'll keep the loan.
What discount points are
Discount points are fees you pay the lender at closing in exchange for a lower interest rate. One point costs 1% of the loan amount. The CFPB explains that how much each point lowers your rate varies by lender and by day; there's no fixed conversion.
Points appear in section A of your Loan Estimate as "% of loan amount (points)." Don't confuse them with origination fees, which are the lender's charges for making the loan and don't lower your rate.
The reverse also exists: lender credits. You accept a higher rate and the lender gives you money toward closing costs. Think of credits as negative points.
The break-even calculation
The key question is how long it takes for the monthly savings to repay the upfront cost.
Break-even months = cost of points ÷ monthly payment savings
If you keep the loan longer than the break-even, through not selling and not refinancing, points save money. If you sell or refinance sooner, you'd have been better off without them.
Worked example at this week's rates
Take a $369,630 loan (10% down on the national median price of $410,700, Q2 2026). Suppose a lender offers this week's average 30-year rate of 7.32% (October 22, 2026) with no points, or a rate 0.25 percentage points lower, 7.07%, for one point. This trade-off is a hypothetical example; actual pricing varies.
- Cost of one point: $3,696
- Payment at 7.32%: $2,539
- Payment at 7.07%: $2,477
- Monthly savings: $63
- Break-even: about 59 months (roughly 4.9 years)
If you're confident you'll keep this loan longer than that, the point pays off. This simple calculation ignores what else you could have done with the cash, such as investing it or keeping it as a cushion. Factoring that in pushes the true break-even out a bit further.
When points tend to make sense
- You plan to stay put for a long time and are unlikely to refinance.
- You have extra cash after covering your down payment, closing costs and an emergency fund.
- Rates seem low relative to recent history, making a future refinance less likely. Nobody can predict rates, but a refinance would wipe out the value of points you paid.
- The seller is paying concessions that can be used toward points.
When to skip points (or take credits)
- You might move or refinance within a few years. Short timelines rarely reach the break-even.
- Cash is tight. Keeping money in the bank for emergencies and repairs is usually worth more than a small rate cut.
- Rates have been high relative to recent history. If rates fall and you refinance, points paid now are money left on the table. Again, this isn't a forecast; it's a risk to weigh.
- You need help with closing costs. Lender credits can lower your cash to close at the cost of a higher payment.
Tax treatment
Points paid on a mortgage to buy your main home may be deductible if you itemize deductions and meet IRS conditions, either in the year paid or spread over the loan's life. IRS Publication 936 has the rules. Many households take the standard deduction instead, in which case points don't provide a tax benefit. Our mortgage interest and taxes guide covers this.
How to compare offers with points
- Ask each lender for quotes at the same points level, for example zero points, on the same day. That makes rates directly comparable.
- Then ask for a price ladder: the rate at -1 (credit), 0, 1 and 2 points.
- Calculate the break-even for each step using the formula above.
- Check the Loan Estimate to make sure the points you agreed to appear in section A as expected. See how to compare mortgage rates.
Common questions
Can the seller pay my points? Often, yes, within loan program limits on seller concessions. That can be a good use of a seller credit if you plan to keep the loan for a long time.
Do points help me qualify? A lower rate lowers your payment, which can improve your debt-to-income ratio. But points also increase your cash needed at closing, so they help only if you have the cash.
What are "negative points"? That's another name for lender credits: you accept a higher rate in exchange for money toward closing costs.
Are points refundable if I refinance? No. Points are a sunk cost once you close. That's the main risk of buying them.
Practical takeaways
- One point costs 1% of the loan and lowers the rate by an amount that varies by lender.
- Divide the point cost by the monthly savings to get your break-even in months.
- Points make sense for long holding periods with spare cash; credits help when cash is tight.
- Don't sacrifice your emergency fund to buy points.
- Run your own break-even with the mortgage calculator, and check closing costs for your area on your state page.
When you are ready to shop, Compare mortgage options with a lender (Affiliate link. We may earn a commission.).
Sources
- CFPB: What are discount points?
- CFPB: What is a Loan Estimate?
- IRS Publication 936: Home Mortgage Interest Deduction
- Freddie Mac Primary Mortgage Market Survey
Rates and prices are as of the dates noted and will change. The point pricing in the example is hypothetical. This article is for education only and is not financial or tax advice.
