Mortgage Points Explained: Should You Pay to Lower Your Rate?
Pay now, save later — or pay now and move before it pays off. Here is how to tell which one you are.
- One discount point = 1% of your loan amount, paid at closing.
- Each point lowers your rate by an amount the lender sets — it varies, so always ask.
- Points pay off only if you keep the loan past the break-even point (cost ÷ monthly savings).
- Planning to move or refinance soon? Points usually are not worth it.
Buying points is like buying a gym membership in January. If you keep going all year, great deal. If you quit in March, you paid for a very expensive towel. Points work the same way: they reward people who keep the loan for a long time.
What exactly is a mortgage point?
A discount point is prepaid interest. You pay it upfront at closing, and in exchange the lender gives you a lower interest rate for the life of the loan.
- On a $400,000 loan, 1 point = $4,000.
- Half points and quarter points are common too.
- How much the rate drops per point is not fixed — it depends on the lender and the market.
How to find your break-even point
The math is simple:
Break-even (months) = cost of points ÷ monthly payment savings
When points make sense
- You plan to stay in the home (and keep this loan) well past the break-even point.
- You have extra cash after the down payment and still keep an emergency fund.
- Rates are not expected to drop soon, so a refinance is unlikely.
When to skip points
- You may move in a few years.
- You expect to refinance if rates fall — a refinance wipes out the benefit you prepaid for.
- Paying points would drain your savings or shrink your down payment below 20% (adding PMI).
Discount points vs origination points
| Discount points | Origination points | |
|---|---|---|
| What it is | Prepaid interest to lower your rate | A lender fee for making the loan |
| Lowers your rate? | Yes | No |
| Optional? | Yes | Depends on the lender |
Both show up on page 2 of your Loan Estimate, in Section A. Read the labels carefully.
Are points tax deductible?
Discount points on a mortgage for your main home can often be deducted if you itemize, subject to IRS rules. Ask a tax professional how it applies to you.
Bottom line
Points are a bet on time. Do the break-even math, be honest about how long you will keep the loan, and compare at least three lenders’ rate-and-points options. Test different rates in our mortgage calculator and see when refinancing beats points with the refinance calculator.
Related reads: closing costs explained and when to refinance.
FAQ
How many points can I buy?
Lenders set their own limits, often up to a few points. Loan rules also cap total points and fees on many loans.
Can the seller pay for my points?
Often yes, as part of seller concessions, within your loan program limits.
Do points make sense on an ARM?
Usually less, because the lower rate only applies during the fixed period.
Sources: CFPB guidance on discount points and lender credits; IRS Publication 936 (Home Mortgage Interest Deduction). Example payments calculated with the standard amortization formula.
Keys & Coffee is an independent education site. We are not a lender or mortgage broker, we do not take loan applications or payments, and nothing here is financial advice. This site is not affiliated with Axia Home Loans, Axia Financial, LLC, or Planet Home Lending. Rates and rules change often — always confirm details with a licensed loan officer and check any lender on the NMLS Consumer Access site.
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