Updated April 1, 2026
Model your mortgage with and without points
Compare total interest, monthly payment, and break-even timeline side by side.
Mortgage discount points are an upfront fee, 1% of the loan per point, that buys down your interest rate, typically by 0.25 percentage points per point. Whether they are worth buying depends entirely on your break-even month: the point at which your cumulative monthly savings exceed what you paid upfront. Buy them if you plan to stay past that date. Do not buy them if you might sell or refinance before it arrives.
Discount points vs. origination points: not the same thing
Both are called "points." Both cost 1% of the loan amount each. They are not the same thing, and the distinction matters when you are reading a Loan Estimate.
Discount points are optional. You pay them to purchase a lower interest rate. Origination points are a lender fee for processing the loan, sometimes called an origination fee when it is expressed as a flat dollar amount instead of a percentage. Origination fees do not lower your rate. They are just a cost of getting the loan, which is why they appear in the APR calculation but do not show up as a rate reduction on your quote.
The CFPB's explanation of discount points is one of the cleaner plain-language descriptions available. A Loan Estimate will break out both in Section A of page 2, and the lender is required to show you how buying points changes your rate on page 1 in the "Projected Payments" section.
How the break-even calculation works
The formula is simple. Divide the upfront cost of the points by your monthly payment savings. The result is your break-even month.
Here is a real example. Loan amount: $400,000. Rate without points: 7.00%. Rate with one point: 6.75%. The one point costs $4,000 (1% of $400,000).
- Monthly payment at 7.00%: $2,661 (30-year, principal and interest only)
- Monthly payment at 6.75%: $2,594
- Monthly savings: $67
- Break-even: $4,000 divided by $67 = 59.7 months, which is about five years
If you stay in the home past month 60, every subsequent month puts $67 back in your pocket. Over 30 years you would save about $24,120 in total for that $4,000 investment. If you sell at year four, you lost $788 on the deal. The break-even date is the entire decision.
Use the mortgage calculator to run your own numbers on this. Plug in your loan amount at the two rates you are comparing and subtract the monthly payments to get your savings figure.
When buying points clearly wins
Points work best when all of the following are true. You are buying a home you plan to stay in for at least seven to ten years. You are not stretching your cash reserves thin to pay the points, since depleting your emergency fund to buy down a rate is its own financial risk. You are reasonably confident you will not refinance in the next five years, either because rates are unlikely to drop or because your situation is stable.
Buyers who are purchasing their long-term home in a high-rate environment and have extra cash at closing often find points worthwhile. At 7%, the monthly interest cost on a $500,000 loan is substantial, and reducing it by 0.5 percentage points (two points) saves $177 per month. Over ten years that is $21,240, for an upfront outlay of $10,000. The net gain is $11,240, and you still have all the mortgage interest deduction benefit of a slightly lower rate on your tax returns.
When buying points is a poor trade
First-time buyers with thin cash reserves. People who expect to move within five years. Anyone buying in a rising-rate environment where refinancing is unlikely. Anyone who is uncertain about job stability or who might need liquid cash in the near term.
A particularly common trap: buying points on a 30-year mortgage and then refinancing two years later because rates dropped. You paid the upfront cost, collected two years of savings, and then paid closing costs again on the refinance, none of which was in the plan at closing. Points are only a good investment if the loan you are buying them on actually runs long enough to recoup them.
Some lenders also quote aggressively low rates that require several points to achieve, which makes the rate look appealing in ads but front-loads thousands of dollars that most buyers do not stay long enough to recover. Always ask for the zero-point rate as your baseline and work backward from there. See APR vs interest rate for why the fully-loaded APR, which includes points as a cost, gives you a better comparison across lender offers than the advertised rate alone.
The tax angle
Discount points paid on a mortgage for your primary residence are generally deductible on your federal tax return in the year you pay them, provided certain IRS conditions are met. IRS Topic No. 504 and IRS Publication 936 cover the rules: the loan must be secured by your main home, the points must be a common practice in your area, and the amount cannot exceed what is generally charged. If you paid $4,000 in points and are in the 22% tax bracket, the deduction saves you about $880 in the year you close, which effectively reduces your break-even period. This is worth factoring in.
Points paid on a refinance are not deductible all at once; they are amortized over the life of the loan, so you deduct a small amount each year. That changes the math on a refinance versus a purchase. Consult a tax professional for your specific situation, particularly if you are subject to the Alternative Minimum Tax or if the standard deduction makes itemizing irrelevant for you.
Lender credits: the opposite of points
If points buy down your rate in exchange for upfront cash, lender credits do the reverse. The lender raises your rate slightly, by perhaps 0.25 to 0.50 percentage points, and gives you cash toward closing costs. You pay more in interest every month but less out of pocket at closing.
Lender credits make sense for buyers who are short on cash at closing, plan to move or refinance within a few years, or who can invest the cash they preserve at a return exceeding their added monthly interest cost. They are not free money; the math is just the opposite of buying points, with the lender collecting the payoff instead of you.
How many points should you buy?
There is no general answer, because the rate reduction per point is not linear and varies by lender, loan size, and market conditions. Most lenders allow you to buy anywhere from zero to four points, sometimes more. The first point often produces a bigger rate reduction than the second, and so on, because lenders hedge their profitability at each level.
Get a rate sheet showing the cost per point for each rate tier you are eligible for. Calculate the break-even for each option separately. The first point might break even in five years; the second might take nine. If you plan to stay ten years, the second point still pays off. If you plan to stay six years, buy one point only. See how loan amortization works to understand why the interest savings per dollar of rate reduction are largest in the early years when your principal balance is highest.
Points and how much home you can afford
Buying points reduces your monthly payment, which can affect how much loan you qualify for. If your lender qualifies you based on a debt-to-income ratio and a lower payment from bought points pushes you into a qualifying range you did not reach at the par rate, points can expand what you can buy, not just how much you pay. This is more relevant in high-rate environments where payment-to-income ratios are tighter than in low-rate markets. See how much loan you can afford for the income-to-payment framework lenders use to evaluate borrowers.
Rate reduction amounts are illustrative and not guaranteed. Actual point costs and rate reductions vary by lender, credit profile, and market conditions. Tax deductibility depends on individual circumstances; consult a tax professional. Not financial advice.
Model your mortgage with and without points
Compare total interest, monthly payment, and break-even timeline side by side.