Quick answer

Paying mortgage points (also called discount points) can be a smart move when you plan to keep the loan long enough to recover the upfront cost through smaller monthly payments. Points are most useful on large loans, when you expect to remain in the home for several years, and when you have cash available after closing. They are less attractive if you’ll refinance or sell soon, or if that cash could earn more elsewhere.

How discount points work (plain language)

  • A discount point typically equals 1% of the loan amount and buys down the mortgage rate. Lenders commonly quote that one point lowers the rate by roughly 0.125%–0.25%, but the actual reduction varies by lender and market conditions.
  • Example: On a $300,000 30-year fixed loan, one point costs $3,000. If that point reduces the rate from 4.00% to 3.75%, your monthly principal-and-interest payment falls from about $1,432 to $1,389 — a $43 monthly saving (calculations shown below).
  • Break-even months = (cost of points) ÷ (monthly payment savings). If the break-even is shorter than how long you expect to hold the loan, buying points can save money.

This explanation reflects guidance from the Consumer Financial Protection Bureau on mortgage points and lender disclosures (Consumer Financial Protection Bureau, “Understanding mortgage points”).

Step-by-step: calculate whether paying points makes sense

  1. Identify the cost: points cost = points × loan amount. (1 point = 1% of loan.)
  2. Get the two rates and compute monthly payments for each (with and without points). Use the standard mortgage payment formula or an online calculator.
  3. Subtract the lower payment from the higher payment to get monthly savings.
  4. Divide the points cost by monthly savings to get the break-even months.
  5. Compare break-even months to how long you expect to keep the loan.

Detailed math example

  • Loan amount: $300,000
  • Rate without points: 4.00% (30-year fixed)
  • Rate with 1 point: 3.75%

Monthly payment formula (amortizing loan):
Payment = P × r / (1 − (1 + r)^−n)
Where P = loan amount, r = monthly rate (annual rate / 12), n = total payments (years × 12).

Compute:

  • rno = 0.04/12 = 0.0033333; Paymentno ≈ $1,432
  • rpoint = 0.0375/12 = 0.003125; Paymentpoint ≈ $1,389
  • Monthly savings ≈ $1,432 − $1,389 = $43
  • Cost of 1 point = 0.01 × $300,000 = $3,000
  • Break-even months = $3,000 ÷ $43 ≈ 69 months (about 5.75 years)

So, if you plan to live in the house and keep the mortgage more than ~5.75 years, buying one point would likely save you money on interest. If you sell or refinance earlier, you lose money on the upfront payment.

Note: small differences in quoted rates, fees, or rounding can change the break-even time. Always run the numbers for your exact loan offers.

Common buyer scenarios — when points often make sense

  • You expect to stay 6+ years: Points usually pay off for borrowers who remain in the same mortgage beyond the break-even.
  • Large loan amount: A 1% fee on a $500K loan buys a bigger monthly reduction than on a $150K loan, so the dollar benefit rises with loan size.
  • Low-risk cash position: If you can afford the upfront outlay without draining emergency savings, points can be a good use of cash.

When points rarely make sense

  • Short homeownership horizon: If you’ll sell, move, or likely refinance within the break-even period, don’t buy points.
  • Better uses for cash: If you can pay down high-interest debt, invest at a higher expected return, or keep liquid savings, those alternatives may beat the benefit of buying down the rate.
  • When the lender’s rate reduction per point is small: Some lenders charge a lot for little rate reduction — always compare the actual numbers and APRs.

Other practical considerations

  • Origination points vs discount points: Discount points buy a lower rate. Origination points are lender fees that do not lower the interest rate. Ask your lender to itemize which points are discount points.
  • APR and total cost: The annual percentage rate (APR) factors in upfront fees and is useful for comparing loans. A lower nominal rate with high points might leave you with a similar or higher APR than a higher-rate/no-points loan.
  • Lender credits: Lenders sometimes offer credits that increase your rate in exchange for cash to cover closing costs. These are the opposite of paying points; see our glossary comparison for more on when to buy down a rate versus take credits (Mortgage Points vs Credits: When Buying Down Your Rate Makes Sense).
  • Closing costs: Points are paid at or before closing and are part of closing costs. See our guide to common closing costs for items that may interact with points decisions (Mortgage Closing Costs: Common Fees and How to Save).

Tax treatment of points (U.S. federal tax rules, 2025)

  • Purchase of main home: In many cases, discount points paid to obtain a mortgage for your main home are deductible in the year you pay them if you meet IRS conditions (they are customary in the area, they are not for services, and you use the loan to buy or build your main home). See IRS guidance on deducting points (IRS Publication 936) for specifics.
  • Refinancing: Points paid to refinance a mortgage generally must be deducted over the life of the loan (amortized), except in certain cases such as when part of the refinanced loan funds home improvements.
  • Itemizing: Points are an itemized deduction, so you must itemize to claim them; the Tax Cuts and Jobs Act did not eliminate the mortgage interest deduction but did raise the standard deduction, which affects whether you itemize.

Tax rules change and individual circumstances vary. Consult a tax pro or the IRS rules on points before assuming a tax benefit (IRS Publication 936, irs.gov).

Practical negotiation and planning tips

  • Ask for the break-even calculation from your lender. They should show how many months until you recover the points cost.
  • Compare APRs as well as monthly payments. APR makes different fee structures easier to compare.
  • If you’re short on cash but want a lower payment, negotiate for a smaller number of points or ask the seller to contribute to closing costs if the market permits.
  • Consider partial point purchases: many lenders let you buy fractional points (0.25, 0.5) to fine-tune the trade-off between cash outlay and rate reduction.

Real-world caution from practice

In my work with borrowers, a frequent mistake is treating a lender quote as a fixed truth. Two lenders may offer similar rates but charge very different fees for identical rate reductions. Always get the Loan Estimate, confirm whether points are “discount” or “origination,” and run your own break-even math. In one case I advised a client who planned to stay in a home about four years; paying two points (costing several thousand dollars) looked attractive until we recalculated the break-even — it was 8.5 years, so we declined and the client used the cash to pay down high-interest credit card debt instead.

Checklist before paying points

  • Do the break-even math for your exact loan offers.
  • Confirm points are discount points and see the itemized Loan Estimate.
  • Verify whether points are deductible this year and whether you itemize.
  • Compare APRs and ask for rate/point grids from multiple lenders.
  • Keep an emergency fund after paying points — do not drain reserves.

Bottom line

Paying points is a cash-for-rate trade. When you have the cash, plan to hold the loan past the break-even point, and get a meaningful rate cut per point, buying points can lower your lifetime financing cost. If you expect a move, refinance, or better use for the cash, avoid or minimize points.

Professional disclaimer
This article is educational and does not replace individualized financial, tax, or legal advice. For decisions about your mortgage, consult a licensed mortgage professional and a tax advisor to apply federal rules (IRS Publication 936) and Consumer Financial Protection Bureau guidance to your situation.

Authoritative sources

  • Consumer Financial Protection Bureau: “Understanding mortgage points” (consumerfinance.gov)
  • IRS Publication 936: “Home Mortgage Interest Deduction” (irs.gov)

Internal resources