Mortgage discount points are one of the most misunderstood tools in home financing. They let you pay cash upfront to reduce your interest rate — but whether that trade-off makes sense depends on how long you keep the loan. Most borrowers either skip them without doing the math or buy them because the lender suggested it. Neither approach is right. The answer is always in the breakeven calculation.
One mortgage discount point equals 1% of your loan amount. On a $350,000 loan, one point costs $3,500. In return, your interest rate drops — typically by about 0.25% per point, though this varies by lender and market conditions. Some lenders offer fractional points (0.5 points, 0.75 points) for borrowers who want a smaller rate reduction.
There are also origination points, which are simply lender fees expressed as a percentage of the loan. Origination points do not reduce your rate — they are just a cost of getting the loan. When people talk about buying points to lower their rate, they mean discount points. Always clarify which type your lender is discussing.
The math is straightforward: divide the cost of the points by your monthly savings. The result is the number of months it takes to recoup your upfront payment. After that, every month of savings is pure profit.
Example: You are borrowing $350,000 at 6.75%. One point costs $3,500 and drops your rate to 6.50%. Your monthly principal and interest payment drops from $2,271 to $2,213 — a savings of $58/month. Breakeven: $3,500 / $58 = 60 months, or exactly 5 years. If you keep the loan for 10 years, you save $3,460 beyond the breakeven point. If you sell or refinance in 3 years, you lose $1,412.
A second example with a larger loan: You are borrowing $500,000 at 6.75%. One point costs $5,000 and drops your rate to 6.50%. Monthly savings: $83. Breakeven: $5,000 / $83 = 60 months. The breakeven period is the same regardless of loan size — it is driven by the rate reduction per point, not the loan amount.
Points make sense when you will keep the loan well past the breakeven period. The best candidates are borrowers who plan to stay in the home for 7 or more years, are confident they will not refinance (perhaps because rates are already near historic lows), have cash available beyond their emergency fund and down payment, and want to reduce their monthly payment for long-term budget reasons.
If you are buying your forever home and rates are reasonable, one to two points can save you $20,000 to $40,000 over the full 30-year term. On a $400,000 loan, two points cost $8,000 upfront but save roughly $116/month — that is $41,760 over 30 years, a return of more than 5 times your investment.
Skip points if you might move within 5 years, rates are high and you expect to refinance when they drop, cash is tight after your down payment and closing costs, or you are not sure how long you will stay. The opportunity cost matters too — that $3,500 invested in an index fund averaging 8% annual return would grow to roughly $5,100 in 5 years, or $7,550 in 10 years.
Also consider that life is unpredictable. Job changes, family changes, and market conditions can force a move or a refinance sooner than expected. If there is any reasonable chance you will not keep this specific loan for at least 5 years, skip the points.
Instead of negotiating the purchase price down by $5,000, consider asking the seller to pay for discount points. Here is why: a $5,000 price reduction on a $350,000 home saves you about $30/month on your mortgage. But $5,000 in seller-paid points reduces your rate by roughly 1.4 points, saving you about $80/month. The seller spends the same amount either way, but you get significantly more benefit from the rate reduction.
This strategy works especially well in buyer's markets where sellers are motivated. Seller concessions for closing costs and points are allowed up to certain limits depending on your loan type — typically 3% to 6% of the sale price. Your agent should know how to structure this in the offer.
A 2-1 buydown is a different animal from permanent discount points. With a 2-1 buydown, your rate is reduced by 2% in year one, 1% in year two, and returns to the full rate in year three. On a 6.5% loan, you would pay 4.5% the first year and 5.5% the second year. This structure is typically paid for by the seller or builder as a sales incentive.
The key difference: a 2-1 buydown only saves you money for 2 years, then your payment jumps to the full amount. Permanent points reduce your rate for the life of the loan. Buydowns are best for borrowers who expect their income to increase or plan to refinance within a few years. Permanent points are best for borrowers who want lasting savings.
Mortgage points are generally tax-deductible. On a purchase loan, points paid at closing are fully deductible in the year you buy. On a refinance, points must be deducted proportionally over the life of the loan — so 1/30th per year on a 30-year mortgage. If you are in the 24% tax bracket and pay $3,500 in points, the tax deduction saves you $840 (on a purchase) or $28/year (on a refinance).
However, the tax benefit only applies if you itemize deductions. With the standard deduction at $15,700 for single filers and $31,400 for married filing jointly in 2026, many homeowners do not itemize. Do not factor the tax deduction into your breakeven calculation unless you are confident you will itemize.
When you get a Loan Estimate, ask your lender to show you pricing at three levels: zero points, one point, and two points. Compare the monthly payments and calculate the breakeven for each scenario. Some lenders also offer negative points (lender credits), where you accept a higher rate in exchange for cash toward closing costs. This is the opposite of buying points and can make sense if you plan to refinance soon.
Use our mortgage points calculator at /tools/mortgage-points-calculator to run the numbers side by side. Input your loan amount, the rates offered at different point levels, and how long you plan to keep the loan. The calculator shows your breakeven month and total savings or losses at any time horizon.
Buying mortgage points is a math decision, not an emotional one. Calculate the breakeven, compare it to your expected time in the home, and consider the opportunity cost of the cash. If you will keep the loan past the breakeven point, points can save you tens of thousands of dollars. If there is any doubt, keep your cash and take the higher rate. You can always refinance later if rates drop.