Background

In my 15 years advising borrowers, I’ve seen origination points quietly change the math on otherwise attractive refinances. Lenders charge these points to cover underwriting, processing, and risk. While often smaller than total closing costs, they can add thousands to what you pay at closing and delay your break-even date.

How origination points affect your break-even date

  • Definition: One origination point = 1% of the new loan amount. A lender charging 1 point on a $300,000 refinance means $3,000 due at closing.
  • Break-even formula: Break-even (months) = Cost of refinancing ÷ Monthly savings. Include points, appraisal, title, and any other closing costs in the numerator.

Example (clear math)

  • Loan: $300,000 refinance
  • Origination points: 2% → Cost = $6,000
  • Estimated monthly savings from lower rate: $300
  • Break-even: $6,000 ÷ $300 = 20 months

In practice I also add any prepaid fees or financed points to the cost total. If you plan to sell or move before the break-even date, the refinance may not make sense even if the monthly payment falls.

Practical scenarios and choices

  • Roll vs. pay up front: Some lenders let you roll origination points into the loan balance. That reduces cash at closing but raises interest costs and may extend break-even.
  • Buying down the rate: Distinguish origination points from discount points (rate buy-downs). Discount points lower your rate; origination points pay the lender’s fee. See our primer on Understanding Mortgage Points: Discount Points vs. Origination Points.

Real-world example

A client, Sarah, refinanced a $300,000 mortgage from 4.5% to 3.5% with 2 origination points ($6,000). Her gross monthly savings were $300, but after adding $1,200 in other closing costs the full refinance cost was $7,200. Her break-even moved to 24 months (\$7,200 ÷ \$300). She planned to stay at least five years, so the refinance still made sense for her goals.

Quick reference table

Loan Amount Origination Points (%) Cost in Dollars Monthly Savings Break-even (Months)
$200,000 1.0 $2,000 $150 13.3
$250,000 2.0 $5,000 $250 20.0
$300,000 1.5 $4,500 $200 22.5

Who is affected and when to avoid points

  • Short-term owners: If you plan to sell or move before the break-even date, skip paying origination points.
  • Low-cash borrowers: Rolling points into the loan increases long-term interest; calculate total interest paid over the loan’s life.
  • Rate-sensitive borrowers: If you can shop for lenders, compare offers — both the interest rate and APR (which includes points and fees) matter. See our guide on Strategies for Negotiating Refinance Closing Costs.

Tips and strategies (practical)

  1. Compare APRs, not just nominal rates — APR reflects points and most upfront fees (Consumer Financial Protection Bureau explains why APR matters).
  2. Use the break-even formula and add ALL closing costs (points, appraisal, title, prepaids) to the numerator.
  3. Negotiate or ask for lender credits if you prefer lower cash at closing — credits often mean a slightly higher rate.
  4. If you have low plans to stay in the home, avoid points. If you plan to stay long-term, buying points to lower the rate can be a good investment.

Common mistakes

  • Ignoring financed points: Rolling points into the loan changes the loan balance and total interest but keeps upfront cash low — many borrowers forget to include added interest in their cost analysis.
  • Only comparing monthly payments: A smaller monthly payment doesn’t automatically mean the refinance saves money when you include points and fees.
  • Failing to check APR: APR gives a fuller picture of cost and is required on most loan estimates (see CFPB guidance).

Short FAQs

  • Are origination points the same as discount points? No. Origination points are lender fees; discount points are paid to lower your interest rate. Both are expressed as a percentage of loan amount.
  • Can I finance origination points? Often yes, but financing increases your loan balance and the interest you pay over time.
  • Are points tax-deductible? Tax rules vary: discount points paid to buy a rate reduction on your primary home may be deductible in the year paid if certain rules apply; points on a refinance are usually deducted over the life of the loan. Check IRS Publication 936 or speak with a tax professional for your situation (IRS guidance: https://www.irs.gov/publications/p936).

Bottom line

Origination points shift costs from monthly payments to upfront cash and directly lengthen the break-even refinance date. Run the break-even calculation with all closing costs, compare APRs across offers, and match the choice to how long you plan to keep the home.

Professional disclaimer

This content is educational and does not replace personalized advice. For recommendations tailored to your situation, consult a qualified mortgage professional or tax advisor.

Sources

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