What are mortgage points?

Mortgage discount points are upfront fees you pay at closing to lower your interest rate. One point costs 1% of your loan amount and typically reduces your rate by 0.25%. On a $300,000 loan, one point costs $3,000 and might lower your rate from 6.75% to 6.50%.

Are mortgage points tax deductible?

Yes. On a purchase, points paid are fully deductible in the year you buy the home. On a refinance, points must be deducted over the life of the loan. You must itemize deductions to claim them.

How long do you have to stay in a home for points to be worth it?

The typical break-even period for mortgage points is 4-7 years. If you plan to stay in the home longer than the break-even period, buying points saves money. If you might move or refinance sooner, skip the points.

Mortgage Points Explained: When Buying Down Your Rate Makes Sense (2026)

Mortgage points let you pay upfront to get a lower interest rate for the life of your loan. Whether this makes sense depends on how long you’ll keep the mortgage.

How Mortgage Points Work

Term	Definition
Discount point	1% of the loan amount, paid at closing, lowers your rate
Rate reduction per point	Typically 0.25% (varies by lender and market)
Origination point	A lender fee for processing (not the same as discount points)
Negative points (lender credits)	Lender pays your closing costs in exchange for a higher rate

One Point = 1% of Loan Amount

Loan Amount	Cost of 1 Point	Cost of 2 Points
$200,000	$2,000	$4,000
$300,000	$3,000	$6,000
$400,000	$4,000	$8,000
$500,000	$5,000	$10,000
$750,000	$7,500	$15,000

Break-Even Analysis

$300,000 Loan, 30-Year Term

Scenario	Rate	Monthly P&I	Monthly Savings	Point Cost	Break-Even
No points	6.75%	$1,946	—	$0	—
1 point	6.50%	$1,896	$50	$3,000	60 months (5 years)
2 points	6.25%	$1,847	$99	$6,000	61 months (5.1 years)
3 points	6.00%	$1,799	$147	$9,000	61 months (5.1 years)

$500,000 Loan, 30-Year Term

Scenario	Rate	Monthly P&I	Monthly Savings	Point Cost	Break-Even
No points	6.75%	$3,243	—	$0	—
1 point	6.50%	$3,160	$83	$5,000	60 months (5 years)
2 points	6.25%	$3,079	$164	$10,000	61 months (5.1 years)

Long-Term Savings

$300,000 Loan With 1 Point ($3,000 Cost)

Time in Home	Total Savings	Net Savings (Minus Point Cost)	Worth It?
3 years	$1,800	-$1,200	No
5 years	$3,000	$0	Break-even
7 years	$4,200	$1,200	Yes
10 years	$6,000	$3,000	Yes
15 years	$9,000	$6,000	Yes
30 years (full term)	$18,000	$15,000	Yes

When Points Make Sense

Situation	Buy Points?	Why
Staying 7+ years	Yes	Well past break-even
Have extra cash at closing	Yes	Can afford upfront cost
Want lowest possible payment	Yes	Reduces monthly cost
Tax benefit matters	Yes	Points are deductible
High loan amount ($500K+)	Yes	Savings per point are larger
Staying 3 years or less	No	Won’t reach break-even
Cash is tight at closing	No	Use cash for down payment instead
Might refinance soon	No	New loan erases the benefit
Rates might drop	No	You’d likely refinance anyway

Points vs. Larger Down Payment

Should you use extra cash for points or a bigger down payment?

$350,000 Home, Extra $7,000 at Closing

Option	Down Payment	Loan Amount	Rate	Monthly P&I	Monthly MI	Total Monthly
5% down, no points	$17,500	$332,500	6.75%	$2,157	$139	$2,296
5% down, 2 points	$17,500	$332,500	6.25%	$2,048	$139	$2,187
7% down, no points	$24,500	$325,500	6.75%	$2,112	$122	$2,234

In this example, the larger down payment ($62/month savings) beats points ($109/month savings but $7,000 cost). However, points produce larger savings over time if you stay long enough.

Lender Credits (Negative Points)

Instead of buying points to lower your rate, you can accept a slightly higher rate in exchange for the lender covering your closing costs:

$300,000 Loan

Scenario	Rate	Monthly P&I	Lender Credit	Closing Cost Savings
1 negative point	7.00%	$1,996	$3,000	$3,000 toward closing costs
No points	6.75%	$1,946	$0	None
1 positive point	6.50%	$1,896	-$3,000 (you pay)	None

When Lender Credits Make Sense

Situation	Take Credits?
Short-term stay (under 5 years)	Yes—lower upfront cost
Cash-strapped at closing	Yes—reduces out-of-pocket
Planning to refinance soon	Yes—lower initial cost
Long-term stay (7+ years)	No—higher rate costs more over time

Tax Deductibility of Points

Situation	Tax Treatment
Points on a home purchase	Fully deductible in the year of purchase
Points on a refinance	Deducted over the life of the loan (prorated)
Must itemize deductions	Standard deduction is $15,000 (single) / $30,000 (married) in 2026
Points must be customary for the area	IRS checks that point amounts are normal
Must be for primary residence	Points on investment property are handled differently

Tax Savings From Points

Points Paid	Tax Bracket (22%)	Tax Bracket (24%)	Tax Bracket (32%)
$3,000	$660 saved	$720 saved	$960 saved
$5,000	$1,100 saved	$1,200 saved	$1,600 saved
$7,500	$1,650 saved	$1,800 saved	$2,400 saved
$10,000	$2,200 saved	$2,400 saved	$3,200 saved

Tax savings reduce the effective cost of points, shortening the break-even period by 6-12 months.

Negotiating Points

Strategy	How It Works
Ask multiple lenders for quotes with and without points	Compare the true cost of each option
Request a “float down” option	If rates drop before closing, you get the lower rate
Negotiate seller-paid points	Seller can pay points as part of concessions
Compare fractional points	You don’t have to buy a whole point—0.5 or 0.75 points are common