Should You Buy Mortgage Points? A Break-Even Walkthrough
Buying mortgage points pays off only if you keep the loan past the break-even month. Divide the upfront points cost by the monthly payment savings to find it: $4,000 in points saving $66 per month breaks even in about 60 months. Buyers who plan to stay at least that long, who have the cash at closing, and who do not expect to refinance soon are the best candidates. Everyone else should usually skip the points.
Buying mortgage points is one of the few home-loan decisions that reduces to a single division problem. The marketing around points is emotional, with talk of lower rates and lifetime savings. The math is not. This walkthrough shows the exact steps, with a worked example on a $400,000 loan, so you can answer the question for your own numbers.
Step 1: Price the points in dollars
One discount point equals 1% of the loan amount, paid at closing. On a $400,000 loan, one point costs $4,000. Two points cost $8,000. This is prepaid interest, not a fee for processing, and it is the number you will divide against later. Note that points are priced on the loan amount, not the purchase price, so a bigger down payment shrinks both the loan and the cost of each point.
Step 2: Get the rate reduction in writing
The rule of thumb is that one point buys the rate down by about 0.25 percentage points, but the Consumer Financial Protection Bureau notes that the actual reduction varies by lender and by market. A lender might offer 0.25% for the first point and only 0.15% for the second, or the pricing might be richer on some loan programs than others. Ask for a written quote showing the rate with zero points and the rate with the points you are considering. Never decide on a rule of thumb when the lender will give you the real number.
Step 3: Compute both monthly payments
Use the standard amortization formula for principal and interest: M = P x r(1+r)^n / ((1+r)^n - 1), where P is the loan amount, r is the monthly rate, and n is the number of payments. For the worked example: $400,000 at 6.75% over 30 years gives a monthly payment of about $2,594. At 6.50% after buying one point, the payment is about $2,528. The monthly savings is the difference: about $66. Our calculator above runs this math instantly, including the total interest over the full term.
Step 4: Divide cost by savings
Break-even in months equals the upfront cost divided by the monthly savings. Here that is $4,000 divided by $66, or about 60 months, five years. Every month you keep the loan after month 60, the points earn you $66. Every month you exit early, through a sale or a refinance, you forfeit part of the $4,000. The break-even framing also exposes weak deals: if a lender offers only a 0.15% reduction for a point, the savings shrink and break-even can stretch past 8 years.
Step 5: Compare break-even against your real plans
This is where most buyers go wrong, because plans are guesses. Ask three questions. First, how long will you plausibly keep this exact loan? The median homeowner moves every 10 to 13 years, but refinances reset the clock, and a refinance two years in wipes out the points investment. Second, do you have the cash at closing without stretching your reserves? Points compete with your emergency fund and moving costs. Third, what is the opportunity cost? The $4,000 could alternatively shrink the loan balance, which also lowers the payment and improves your loan-to-value ratio.
Who should usually buy points
Points fit buyers who are confident they will keep the loan well past break-even, who have comfortable cash reserves after closing, and who are buying in a rate environment where refinancing soon looks unlikely. They also fit buyers who value a lower required monthly payment for budgeting reasons, since the savings are locked in every month. If you itemize deductions, the possible tax deduction for points on a purchase loan for your main home sweetens the deal; see our guide on deductibility and IRS Topic 504.
Who should usually skip them
Skip points if you might move, refinance, or sell before break-even. Skip them if paying the points would leave your cash reserves thin, because liquidity at move-in is worth more than a slightly lower payment. Skip them if your lender's per-point rate reduction is meager. And skip them if you are already stretching to qualify, since a larger down payment that improves your loan-to-value can do more for your overall position than a rate buydown.
The bottom line
Run your own break-even with the calculator at the top of this page, get the per-point reduction in writing, and be honest about how long you will keep the loan. Points are neither good nor bad. They are a bet on staying put, and the break-even month tells you exactly what that bet costs.
The lender credit mirror image
Points have an opposite: the lender credit. Instead of paying cash to lower the rate, you accept a slightly higher rate and the lender credits you cash at closing to cover costs. On the same $400,000 loan, taking a 7.00% rate instead of 6.75% might earn a $4,000 credit. The break-even math runs in reverse: the credit is worth it if you sell or refinance before the higher payment eats the $4,000, which at roughly $66 extra per month is about 60 months. Lender credits suit buyers who are cash-light at closing or who expect to refinance within a few years. Points suit buyers with cash to spare and long horizons. Most borrowers should price all three options, credit, zero points, and discount points, and pick by holding period.
How points interact with loan programs
Point pricing is not identical across loan types. Conventional loans generally offer the richest buydown per point. FHA and VA loans allow points too, but their rate structures and fee rules differ, and VA loans cap certain fees in ways that change the math. Adjustable-rate mortgages price points against the initial fixed period, which shortens the effective horizon and usually makes points a poor fit. Jumbo loans often have the most negotiable point pricing because the loan amounts are large and the competition is fierce. Whatever program you use, get the buydown grid in writing: the rate at zero points, at one point, and at two points, so you can see whether the second point buys as much as the first.
Data current as of October 2026. Rate math follows standard amortization; tax notes follow IRS Topic 504. Verify current point pricing with your lender.