Are Mortgage Points Worth It? How to Decide
A mortgage lender offers to lower your interest rate in exchange for paying “points” up front. It sounds simple, but whether it is a good deal depends on one number: how long you keep the loan. Here is the math and the rule of thumb.
What is a mortgage point?
One point costs 1% of the loan amount and typically lowers your interest rate by about 0.25 percentage points. On a $400,000 loan, one point is $4,000, and a 6.50% rate becomes roughly 6.25%. Lenders vary — some quote 0.125% per point or offer “buy-downs” with different pricing — so always ask for the exact rate reduction in writing.
The break-even calculation
Buying points only makes sense if you keep the loan long enough for the lower payment to repay the upfront cost. The break-even point is:
Points cost ÷ monthly payment savings = months to break even
Example: one point on a $400,000 loan costs $4,000 and lowers the payment by about $70 a month. $4,000 ÷ $70 ≈ 57 months, or just under 5 years. Keep the loan past that point and you come out ahead; sell or refinance sooner and you lose money.
When points make sense
- You plan to stay 7+ years. The longer the horizon, the more the lower rate pays off.
- You have cash to spare. Points raise your closing costs; if that money would strain savings or your emergency fund, skip them.
- You are financing. Rolling points into the loan increases both principal and interest — usually a worse deal than paying cash.
- Rates are high. When rates are elevated, a 0.25% reduction saves more absolute dollars, shortening the break-even.
When to skip points
If you expect to move or refinance within a few years, if you are stretching to afford closing costs, or if you could earn more investing the cash, skip the points and take the higher rate. Points are also tax-deductible only in specific ways: on a purchase loan they are deductible in the year paid, while on a refinance they are amortized over the loan’s life.
Do the math on your own loan
Use our mortgage points calculator — it computes your break-even month and total savings for any loan size and rate. Then check whether paying extra each month beats points with the extra payment calculator, or compare 15-year vs 30-year terms. New to the process? Start with how much house you can afford.
Want to understand another common financial decision? Read our guide to 2026 401(k) limits.