Mortgage Points Explained: When Buying Down Your Rate Pays Off

When you apply for a mortgage, you’ll often see an option to pay discount points — fees paid upfront in exchange for a lower interest rate. One point typically costs 1% of the loan amount and lowers your rate by roughly 0.25%. On a $400,000 loan, that’s $4,000 paid at closing to shave a quarter point off your rate.

The question isn’t whether points save you money — they do — it’s whether they save you enough money soon enough to be worth the upfront cost.

Run the break-even math:

1. Calculate your monthly savings from the lower rate
2. Divide the cost of the points by that monthly savings
3. The result is how many months you need to stay in the loan to break even

Points tend to make sense when:

• You plan to stay in the home well past the break-even point
• You have extra cash at closing without depleting your reserves
• You’re locking in a long-term mortgage you don’t expect to refinance soon

Points usually don’t make sense when:

• You may sell or refinance within a few years
• The cash would be better spent on a larger down payment or emergency fund
• Rates are expected to drop, making a future refinance likely

Points are a useful tool, not a default choice. Treat them like any investment: weigh the upfront cost against the timeline, and only buy down the rate when the math clearly works in your favor.