Mortgage Points Explained: Are They Worth It?

What Are Mortgage Points?

Mortgage discount points are upfront fees paid to your lender to reduce your interest rate. One point equals 1% of your loan amount. On a $300,000 loan, one point costs $3,000. In exchange, your lender reduces your interest rate — typically by 0.25% per point, though this varies by lender and market conditions.

Origination Points vs. Discount Points

Don't confuse discount points with origination points. Discount points are optional and buy down your rate. Origination points are lender fees for processing your loan — they don't reduce your rate. When comparing loan offers, always separate these two types of points to make an apples-to-apples comparison.

The Break-Even Calculation

Formula: Break-Even Months = Point Cost ÷ Monthly Savings

Example: 1 point on a $300,000 loan costs $3,000 and reduces your rate from 7.0% to 6.75%, saving $52/month. Break-even = $3,000 ÷ $52 = 57.7 months (about 4.8 years). If you stay in the home longer than 4.8 years, buying the point was financially beneficial.

When Buying Points Makes Sense

Points are most beneficial when: you plan to stay in the home long-term (10+ years); you have the cash available; current rates are high and you want to lock in a lower rate; or you're in a high tax bracket and can deduct the points (mortgage points are generally tax-deductible in the year paid for a home purchase).

When to Skip Points

Avoid buying points if: you might sell or refinance within 5 years; you need the cash for a larger down payment (which eliminates PMI); you have high-interest debt to pay off; or you're not planning to stay in the home long-term.

Negative Points (Lender Credits)

The reverse of buying points is accepting lender credits — the lender pays some of your closing costs in exchange for a higher interest rate. This makes sense if you're short on cash at closing or plan to sell or refinance within a few years.