Discount points confuse a lot of buyers. Paying points lowers your rate, but only pays off if you keep the loan long enough. Let me walk through the simple break-even math I use to help buyers decide whether points are worth it.
What points are
A discount point is prepaid interest: you pay a fee at closing to buy a lower rate for the life of the loan. One point usually equals 1% of the loan amount. The rate reduction per point varies, so always confirm the exact trade with your lender.
The break-even calculation
The whole decision rests on break-even. Divide the cost of the points by the monthly payment savings to get the number of months to recover the cost. Stay past that point and you come out ahead; sell or refinance before it and you lose money on the points.
A worked example
| Item | Amount |
|---|---|
| Cost of points | $6,000 |
| Monthly payment savings | $120 |
| Break-even | 50 months (~4.2 years) |
When to pay points
- You plan to keep the loan well past the break-even.
- You want the lowest possible long-term payment.
- You have the cash and do not need it for reserves.
- You do not expect to refinance soon.
When to skip points
Skip points if you might move or refinance before break-even, if you are short on cash and need it for the down payment or reserves, or if you expect rates to fall and plan to refinance. In a ~6.5–7.0% as of 2026 (rates change frequently) market, some buyers would rather keep cash flexible than lock it into points.
Making the call
- Ask your lender the cost and rate reduction per point.
- Calculate your break-even in months.
- Compare it to how long you'll keep the loan.
- Decide whether the cash is better used elsewhere.
Frequently Asked Questions
What are mortgage points?
Discount points are an upfront fee — typically 1% of the loan amount per point — that you pay to lower your interest rate for the life of the loan. They are essentially prepaid interest. Whether they are worth it depends on the break-even point, or how long it takes the monthly savings to recover the cost.
How do I calculate the break-even on points?
Divide the cost of the points by your monthly payment savings to get the number of months to recover the cost. For example, $6,000 in points saving $120 a month breaks even in about 50 months. If you keep the loan past that point, the points pay off; if not, you lose money.
When should I pay points?
Pay points when you plan to keep the loan well past the break-even point, want the lowest long-term payment, have cash to spare beyond your down payment and reserves, and do not expect to refinance soon. If those conditions hold, the long-term monthly savings outweigh the upfront cost.
When should I not pay points?
Skip points if you might move or refinance before reaching break-even, if you are short on cash needed for the down payment or reserves, or if you expect rates to fall and plan to refinance. In those cases, paying points upfront likely will not pay off, and keeping cash flexible is wiser.
How much does one point cost?
One discount point typically costs 1% of the loan amount, so on a $600,000 loan, one point is about $6,000. The amount each point reduces your rate varies by lender and market conditions. Always confirm the exact cost and rate reduction per point with your lender before deciding.
Are points the same as a permanent buy-down?
Yes, paying discount points to permanently lower your rate is effectively a permanent rate buy-down. Both involve paying upfront to reduce the rate for the life of the loan, and both come down to the same break-even math. A temporary buy-down, by contrast, only lowers the rate for the first year or two.
