Last updated: October 5, 2026 · Rates and point pricing here are examples for illustration, not current offers.
When you get a mortgage quote, your lender will often offer a trade: pay more upfront at closing and get a lower interest rate for the life of the loan. That upfront payment is called discount points. Whether points are worth it comes down to one question: how long will you keep the loan?
What are mortgage points?
A discount point costs 1% of your loan amount and buys a lower interest rate. On a $300,000 loan, one point costs $3,000. How much each point lowers the rate depends on the lender and the market; this article uses 0.25 percentage points per point as an example.
Discount points are different from origination points, which are simply a lender fee and do not lower your rate. Your Loan Estimate shows both in the “Loan Costs” section, so read it closely. Learn more about the other fees at closing in mortgage closing costs explained.
Example: buying points on a $300,000 loan
| Option | Upfront cost | Rate | Monthly P&I | Monthly savings | Simple break-even |
|---|---|---|---|---|---|
| No points | $0 | 6.50% | $1,896.20 | – | – |
| 1 point | $3,000 | 6.25% | $1,847.15 | $49.05 | 61 months |
| 2 points | $6,000 | 6.00% | $1,798.65 | $97.55 | 62 months |
The simple break-even is the cost divided by the monthly savings: $3,000 ÷ $49.05 ≈ 61 months, or about five years. If you sell or refinance before then, the points cost you money.
The full picture: what you gain over time
The simple break-even ignores one detail: a lower rate also pays down your balance a little faster, so you owe less when you sell or refinance. Counting the points, the payments and the remaining balance, here is how far ahead each option puts you compared with paying no points:
| If you keep the loan | 1 point ($3,000) | 2 points ($6,000) |
|---|---|---|
| 5 years | +$764 | +$1,523 |
| 7 years | +$2,268 | +$4,525 |
| 10 years | +$4,502 | +$8,978 |
| 30 years | +$14,659 | +$29,119 |
These figures do not account for what the upfront cash could have earned elsewhere. If that money could otherwise pay off high-interest debt or stay in your emergency fund, keeping it is often the better use.
When buying points makes sense
- You expect to keep the home and the loan well past the break-even, typically more than five to seven years.
- You have cash left over after your down payment, closing costs and an emergency fund.
- Rates are unlikely to fall enough for you to refinance soon. If rates drop and you refinance, the points you paid stop paying off.
- The seller has agreed to pay closing costs, and using those credits to buy down the rate is allowed under your loan program.
When to skip points
- You may move, sell or refinance within a few years.
- Paying points would leave you short on cash or force a smaller down payment that triggers PMI.
- You plan to make large extra payments, which shorten the loan and reduce the value of a lower rate. See how extra payments change your schedule.
Points vs. lender credits
Lender credits are the reverse of points: you accept a higher rate and the lender pays part of your closing costs. They make sense if you are short on cash or expect to keep the loan only a few years. Compare all three options, points, no points and credits, using the same loan amount and lock date.
How to compare offers
- Ask each lender for Loan Estimates at the same lock date with zero points and with one point.
- Calculate the break-even for each option.
- Decide how long you realistically expect to keep the loan.
- Check the monthly payment for each rate in our mortgage calculator.
Even a quarter-point difference matters over decades; see how much 1% extra interest really costs.
Frequently asked questions
What is a mortgage point?
A discount point is an upfront fee paid at closing to lower your interest rate. One point costs 1% of the loan amount, so one point on a $300,000 loan costs $3,000.
How much does one point lower the rate?
There is no fixed rule. It varies by lender and market conditions. The examples in this article assume one point lowers the rate by 0.25 percentage points, which is a common illustration, but you should compare the actual options on your Loan Estimate.
How do I calculate the break-even point on mortgage points?
Divide the cost of the points by the monthly payment savings. In our example, $3,000 ÷ $49.05 per month is about 61 months, or roughly five years.
Are mortgage points tax deductible?
Points paid on a loan to buy your main home can often be deducted if you itemize, subject to IRS rules. Points on a refinance are usually deducted over the life of the loan. Check IRS Publication 936 or ask a tax professional.
Sources: CFPB: Buying a House; IRS Publication 936, Home Mortgage Interest Deduction. Example calculations by ToolStackIA.
This article is for educational purposes only and is not financial advice. Loan programs, rates and rules change; confirm details with your lender or a HUD-approved housing counselor.