Are Mortgage Points Worth It?
Buying discount points means paying cash at closing to lower your mortgage rate. That lower rate shrinks every monthly payment — but only the payments you actually make. The whole question is whether you keep the loan long enough for the monthly savings to pay back the upfront cost. Past that break-even point you're ahead; before it, you've simply handed the lender extra money. Plug in your quote and find the line.
Your numbers
This isolates the points question: cash upfront versus a lower monthly payment, over the years you actually keep the loan. It assumes a fixed-rate loan held to your keep-date and compares only the payment stream — it doesn't model the tax treatment of points, the opportunity cost of the cash, or an ARM that resets later. Use your real lender quote for both rate fields.
Buy points
Pay cash at closing for a lower rate, then a smaller payment every month for as long as you keep the loan.
Total paid over 7 years (incl. points)
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Monthly payment
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Points cost upfront
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Break-even month
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No points
Keep your cash at closing and accept the higher rate, paying a little more every month.
Total paid over 7 years
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Monthly payment
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Cost upfront
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Higher rate
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Cumulative cost over time
What "points" actually buy
Discount points are prepaid interest. You hand the lender a lump sum at closing and, in exchange, they lower your interest rate for the life of the loan. The pricing convention is that one point equals 1% of the loan amount — so on a $400,000 loan, one point is $4,000. As a rough rule of thumb a point buys roughly 0.25% off your rate, but that ratio drifts with the market and varies by lender, so don't rely on the rule: read your actual rate sheet and put the real numbers in the fields above. The two rate inputs on this page are the deal — whatever your lender quotes with and without points is what the math uses.
The break-even is everything
The lower rate saves you a fixed amount every month. Divide what you paid for the points by that monthly saving and you get the break-even month — the point at which the accumulated savings have finally repaid the upfront cost. Everything after that is profit; everything before it is loss. So the single most important fact about buying points is this: if you sell the house or refinance the mortgage before the break-even month, you lose money on the points. You paid for a discount you didn't keep long enough to collect.
When points make sense
Points pay off in a fairly specific situation, and it's worth being honest about whether you're in it:
- You'll keep this loan well past break-even. Not "I think I'll stay a while" — long enough that the break-even month is comfortably in the rear-view. The longer past it you go, the more the points earn.
- You have spare cash. The money for points has to come from somewhere that isn't your down payment, your reserves, or your emergency fund. Buying points to then close with no cushion is a bad trade.
- Rates aren't likely to drop soon. If rates fall and you refinance, you forfeit the unrecovered points. Buying points right before a rate-cut cycle is buying a discount you may abandon.
What this leaves out
This calculator compares the two payment streams and nothing more, on purpose. It deliberately ignores three real things. Tax treatment: points and mortgage interest can be deductible, which changes the after-tax math (see the FAQ) — we don't model it because it depends on your return. Opportunity cost of the cash: the money spent on points could have been invested or kept as a buffer; a pure payment comparison can't value that. ARM rate resets: if your loan isn't a plain fixed rate, a future reset breaks the simple "lower rate for the whole term" assumption this math relies on. Treat the result as the floor of the analysis, not the whole of it.
FAQ
Are points tax-deductible?
Often, yes — on a primary residence, discount points are typically treated as prepaid mortgage interest and may be deductible either in the year you paid them or amortized over the life of the loan, depending on how the purchase was structured and on IRS rules. That deduction can meaningfully shorten the real break-even. But it depends on your specific tax situation, and we don't model it here. Talk to a tax professional before you count on it.
What if I refinance later?
You forfeit the unrecovered portion of the points. The break-even on this page assumes you keep this loan to your keep-date. The moment you refinance, the old loan — and the lower rate you bought — goes away, so any points you hadn't yet earned back are simply lost. This is why "rates aren't likely to drop soon" is on the when-it-makes-sense list: a refinance you were happy to do can still turn a points purchase into a loss.
Is 0.25% per point realistic?
It's a common ballpark, but it varies by lender and by the day — pricing moves with the market, and some lenders offer a steeper or shallower discount than others. That's exactly why both rate fields here are inputs rather than a built-in formula. Don't trust the rule of thumb; get a real quote with and without points from your lender and plug both numbers in. The page does the rest.