Are Mortgage Points Worth It?
Calculate if buying discount points makes sense for your loan. See your break-even period and potential savings.
| Points | Upfront Cost | Rate | Monthly | Break-Even |
|---|
Buying 1 point will cost you $3,000 upfront but reduce your interest rate from 7.0% to 6.75%.
This saves you $60 per month on your mortgage payment. After 50 months, you'll have saved enough to cover the cost of the points.
Over the full 30-year loan, buying points would save you $18,600 compared to not buying points.
Are Mortgage Points Worth It?
Mortgage points (also called discount points) are fees you pay upfront to lower your interest rate. Each point typically costs 1% of your loan amount and reduces your rate by about 0.25%. But are they worth it?
The answer depends entirely on how long you plan to keep your mortgage. Points are essentially prepaid interest—you pay more now to pay less later. If you sell or refinance before your break-even point, you lose money.
How to Calculate If Points Are Worth It
The mortgage points break-even calculation is simple:
- Calculate the cost: Multiply points by loan amount (1 point on $300,000 = $3,000)
- Find monthly savings: Compare payments with and without points
- Divide: Cost ÷ Monthly Savings = Break-even months
For example, if points cost $3,000 and save you $60/month, your break-even is 50 months (4.2 years). Keep the loan longer than that, and you come out ahead.
When Buying Points Makes Sense
- You're staying put: Planning to stay in your home 7+ years? Points often pay off
- Rates are high: The higher your base rate, the more valuable the reduction
- You have cash: Only buy points with money you don't need for emergencies
- Tax benefits: Points may be tax-deductible (consult your tax advisor)
When to Skip Mortgage Points
- Short-term ownership: Moving in 3-5 years? You probably won't break even
- Rates might drop: If you'll refinance when rates fall, skip points now
- Tight on cash: That money might be better as a larger down payment
- ARM loans: Adjustable rates make points riskier since rates will change
Frequently Asked Questions
Mortgage points are worth it if you plan to keep your loan longer than the break-even period. This is typically 3-7 years depending on your loan terms. If you might refinance or sell sooner, points may not pay off.
Divide the total cost of points by your monthly savings. For example, if points cost $6,000 and save you $100/month, your break-even is 60 months (5 years). After that, you save money every month.
One mortgage point typically costs 1% of your loan amount. On a $300,000 loan, one point would cost $3,000. Each point usually reduces your interest rate by 0.25%, though this varies by lender.
Yes, both the cost per point and the rate reduction can vary between lenders. Shopping around and negotiating can get you better terms on discount points.
For a purchase loan, points are generally fully deductible in the year paid if certain conditions are met. For refinances, points are typically deducted over the life of the loan. Consult a tax professional for your specific situation.