What are mortgage points?
A "point" is cash you pay your lender at closing in exchange for a permanently lower interest rate. It's a real trade — money out of pocket today for smaller payments for as long as you keep the loan. Whether it pays off comes down to one number: how long you stay.
Points are a bet on yourself. You're wagering that you'll keep this loan long enough for the rate cut to pay back the upfront check.
The basic mechanic
When a lender shows you a rate sheet, you don't see one rate — you see a menu. At the top is the "par" rate with no points. Below it are lower rates, each one bought by paying a chunk of cash up front. That cash is the point.
Points are tax-deductible in the year you buy them on a primary residence (subject to IRS rules). On a refinance, the deduction is usually spread across the life of the loan.
Run your numbers
Tell us about the loan you're considering. We'll assume a 30-year fixed for simplicity — the format that dominates the US market.
Lenders usually let you buy fractional points (0.5, 0.75, etc.) and even "negative points" — taking a higher rate in exchange for a lender credit toward closing costs.
How the rate moves
Each point you buy chips a little more off the rate. The relationship is roughly linear, but the savings per point on your monthly payment shrink the lower the rate goes — basic math of how amortization works.
At your settings, each point cuts the rate by 0.250 percentage points. Lenders sometimes offer better or worse buydowns — always ask for the rate sheet in writing.
The break-even point
Here's the question that matters: how long do you have to keep this loan for the monthly savings to add up to the upfront check you wrote? That's the break-even — the single most important number in any points decision.
Will points actually pay off for you?
The median American homeowner sells or refinances within roughly 7–13 years. If you sell or refi before break-even, points were a bad deal. After break-even, every extra month is gravy. Drag the slider and see where you land.
You'd save $8,344 in lower payments — and your upfront check was $6,000. Net result: you come out $2,344 ahead. Buying points was the right call.
Bars below the line mean points cost you money. Bars above the line mean points paid off. The longer you hold the loan, the more lopsided the trade gets in your favor.
So when does it actually make sense?
Points are not a universal good or evil. They're a financial product with a clear use case and clear traps. Here's the honest breakdown.
- You're confident you'll keep this loan well past the break-even point.
- You have plenty of cash on hand and the upfront cost won't strain your reserves.
- Rates are historically high and you don't expect to refinance soon.
- You're buying a forever home, not a starter.
- The buydown your lender offers is generous (closer to 0.375 pp per point).
- You might sell or refinance within break-even.
- You're stretching to make the down payment work.
- You'd rather put that cash toward a bigger down payment to ditch PMI.
- Rates are historically low and a refi is unlikely to help later.
- The lender's buydown is stingy (less than 0.2 pp per point).
That same chunk of cash, applied as extra principal at closing instead, also reduces your interest cost — and it doesn't lock you into one specific loan. If there's any chance you'll refinance, principal reduction is more flexible than points.
Side-by-side recap
| No points | 1.50 points | |
|---|---|---|
| Interest rate | 6.850% | 6.475% |
| Monthly payment | $2,621 | $2,522 |
| Cash at closing (points) | $0 | $6,000 |
| Lifetime interest | $543,573 | $507,812 |
| Break-even | — | 5.0 years |
See today's actual rates
Numbers above are illustrative. Real lender rate sheets vary day to day — and the buydown per point varies between lenders too. Always ask for the full pricing grid in writing before deciding.