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 |