Mortgage points explained: Should you buy discount points?
Updated July 2026 · 9-minute read · Reviewed by a licensed loan officer
When you're shopping for a mortgage, your lender might offer you the option to "buy points" to lower your interest rate. But what are mortgage points, how much do they cost, and when do they actually save you money? Here's everything you need to know.
What are mortgage points?
Mortgage points (also called discount points) are upfront fees you pay to your lender in exchange for a lower interest rate. One point typically costs 1% of your loan amount and lowers your rate by about 0.25%.
Example
Let's say you're borrowing $400,000:
- Without points: 6.75% interest rate
- With 1 point ($4,000): 6.50% interest rate
- With 2 points ($8,000): 6.25% interest rate
Each point costs $4,000 (1% of $400,000) and reduces your rate by 0.25%.
How mortgage points work
When you buy points, you're essentially prepaying some of the interest on your loan. In exchange, the lender gives you a lower rate for the entire term of the loan.
Key facts about mortgage points
- One point = 1% of the loan amount. On a $400,000 loan, one point costs $4,000.
- Each point typically lowers your rate by 0.25%. But this varies by lender and market conditions.
- Points are paid at closing. You can pay for them out of pocket or roll them into the loan (though that increases your loan amount).
- Points are tax-deductible. If you itemize deductions, you can deduct the cost of points in the year you buy them (for a purchase) or amortize them over the life of the loan (for a refinance).
- Points are non-refundable. If you sell or refinance before breaking even, you lose money.
When do mortgage points make sense?
The key question is: How long will it take you to break even? The break-even point is when the monthly savings from the lower rate exceed the upfront cost of the points.
Break-even calculation
Let's use the example above:
- Loan amount: $400,000
- Cost of 1 point: $4,000
- Rate reduction: 0.25% (from 6.75% to 6.50%)
- Monthly payment without points: $2,593 (principal + interest)
- Monthly payment with 1 point: $2,528 (principal + interest)
- Monthly savings: $65
- Break-even: $4,000 ÷ $65 = 61.5 months (5.1 years)
If you plan to stay in the home for more than 5.1 years, buying the point saves you money. If you'll sell or refinance sooner, you lose money.
✅ Buy points if:
- You plan to stay in the home for a long time. The longer you stay, the more you save. If you'll be in the home for 10+ years, points almost always make sense.
- You have cash available at closing. You need to pay for points out of pocket (or roll them into the loan, which increases your balance).
- You want to maximize long-term savings. Points are most beneficial for borrowers who prioritize total cost over short-term cash flow.
- You're getting a jumbo loan. On larger loans, even a small rate reduction saves significant money.
❌ Avoid points if:
- You plan to sell or refinance soon. If you'll be in the home for less than 5 years, you won't break even.
- Cash is tight. If paying points means depleting your emergency fund, it's not worth the risk.
- You're getting an adjustable-rate mortgage (ARM). If your rate will adjust in 5-7 years, paying for a fixed-rate discount doesn't make sense.
- You can get a better deal without points. Some lenders offer competitive rates without requiring points. Shop around.
Mortgage points vs lender credits
Some lenders offer lender credits instead of points. A lender credit reduces your closing costs in exchange for a higher interest rate. It's the opposite of buying points.
Comparison
| Option |
Upfront cost |
Interest rate |
Monthly payment |
Best for |
| Buy points |
Higher (you pay points) |
Lower |
Lower |
Long-term stay |
| No points |
Moderate |
Moderate |
Moderate |
Balanced approach |
| Lender credit |
Lower (lender pays some costs) |
Higher |
Higher |
Short-term stay, low cash |
Example: Lender credit
Let's say your lender offers:
- Without credit: 6.75% rate, $8,000 closing costs
- With 1% lender credit: 7.00% rate, $4,000 closing costs (lender pays $4,000)
You save $4,000 at closing, but your monthly payment is $65 higher. If you stay in the home for less than 5 years, the lender credit saves you money. If you stay longer, you lose money.
How to decide: A step-by-step framework
- Get Loan Estimates from at least 3 lenders. Compare the rates, points, and closing costs.
- Calculate the break-even point. Divide the cost of points by the monthly savings. If you'll stay in the home longer than the break-even, points make sense.
- Consider your cash situation. Do you have enough cash to pay for points without depleting your emergency fund?
- Think about your future plans. Will you stay in the home for 7+ years? Or might you sell or refinance sooner?
- Compare total costs. Use our mortgage calculator to compare the total cost of each option over the life of the loan.
Real-world examples
Scenario 1: First-time homebuyer, planning to stay 10 years
- Loan: $350,000
- Rate without points: 6.75%
- Rate with 1 point: 6.50%
- Cost of 1 point: $3,500
- Monthly savings: $57
- Break-even: 61 months (5.1 years)
- Result: If you stay 10 years, you save $3,340 ($57 × 120 months - $3,500). Buy the point.
Scenario 2: Planning to sell in 3 years
- Loan: $400,000
- Rate without points: 6.75%
- Rate with 1 point: 6.50%
- Cost of 1 point: $4,000
- Monthly savings: $65
- Savings over 3 years: $2,340 ($65 × 36 months)
- Result: You spend $4,000 but only save $2,340. Don't buy the point.
Scenario 3: Jumbo loan, planning to stay 15 years
- Loan: $800,000
- Rate without points: 7.00%
- Rate with 2 points: 6.50%
- Cost of 2 points: $16,000
- Monthly savings: $266
- Break-even: 60 months (5 years)
- Result: If you stay 15 years, you save $31,920 ($266 × 180 months - $16,000). Buy the points.
Frequently asked questions
Are mortgage points tax-deductible?
Yes, in most cases. For a home purchase, you can deduct the full cost of points in the year you pay them (if you itemize deductions). For a refinance, you must deduct points over the life of the loan (e.g., 1/30th each year for a 30-year loan). Consult a tax professional for your situation.
Can I negotiate the cost of points?
Sometimes. The cost of points varies by lender and market conditions. Shop around and ask lenders to match or beat their competitors' rates and points. Some lenders may reduce points if you have excellent credit or a large down payment.
How many points can I buy?
Most lenders allow you to buy up to 3-4 points, but the benefit diminishes with each additional point. The first point typically gives you the biggest rate reduction. After 2-3 points, the marginal benefit is small.
What's the difference between points and origination fees?
Points are optional fees you pay to lower your interest rate. Origination fees are mandatory fees the lender charges to process your loan (typically 0.5-1% of the loan amount). Points are for your benefit; origination fees are for the lender's profit.
Should I buy points if I'm refinancing?
It depends on how long you plan to stay in the home after refinancing. If you'll stay 7+ years, points might make sense. If you'll sell or refinance again soon, avoid points. Also consider that refinancing resets your loan term, if you're 10 years into a 30-year mortgage and refinance into a new 30-year loan, you're extending your debt by 10 years.
Bottom line
Mortgage points can save you thousands over the life of your loan, but only if you stay in the home long enough to break even. Before buying points, calculate the break-even period and compare it to your future plans. If you'll stay in the home for 7+ years and have cash available, points are often worth it. If you plan to sell or refinance sooner, skip the points and focus on minimizing upfront costs.
Ready to compare options? Use our mortgage calculator to see how different rates and points affect your monthly payment and total cost.