Mortgage points: are they ever worth buying?

What a point is

A “discount point” is prepaid interest. You pay the lender an extra fee at closing in exchange for a permanently lower rate. The standard pricing: 1 point = 1% of the loan amount up front, in exchange for ~0.25 percentage points off the rate.

That ratio varies by lender — some offer better-than-standard buy-downs, especially in higher-rate environments.

The break-even

Points are a pure time-arbitrage:

break_even_months = (point_cost) / (monthly_payment_savings)

If 1 point on a $400,000 loan costs $4,000 and saves you $60/month, you break even at month 67 (~5.6 years). If you’ll keep the loan longer than that, buying the point pays.

When points usually win

• You’ll stay in the home and loan more than 7 years.
• Rates are high (more dollars of savings per point).
• You have free cash at closing that won’t earn a higher return elsewhere.
• The loan is large (the same point % is more dollars saved).

When points usually lose

• You expect to refinance within a few years.
• You’re stretching to make the down payment — that cash is more useful in reserves.
• You’d otherwise invest it at returns that beat your mortgage rate.

Use our points-vs-down-payment-vs-invest analyzer to compare buying points against the two most common alternatives.