Short answer: mortgage points are usually worth it only if you stay in the home — without refinancing — past the break-even point, which is roughly four to five years. On a $400,000, 30-year loan at 6.75%, paying one point ($4,000) to cut the rate to 6.50% saves $66.12 a month. The simple rule — cost divided by monthly saving — puts break-even at about 61 months, but counting the extra principal you repay, the true break-even is closer to 48 months. Stay seven years and that point has saved you about $3,039 after its cost. Move or refinance in year three and it has lost you about $989.
Try it now: open the free Mortgage Points Calculator and enter your loan amount, rate, the reduction each point buys, and how long you expect to stay. It compares each option side by side — rate, monthly payment, upfront cost and break-even — no sign-up, no download.
What a Mortgage Point Actually Is
One "point" is 1% of the loan amount, paid upfront at closing in exchange for a lower interest rate. On a $400,000 loan, one point costs $4,000. Two points cost $8,000. In exchange, the lender cuts your rate — commonly by about 0.25% per point, though the exact reduction varies by lender and by market conditions, and it is negotiable. The industry name for this is "buying down the rate", and the older term is "discount points".
Points are a trade, not a discount in the everyday sense: you pay more on day one to pay less every month after. Whether the trade wins depends on exactly one thing — how long you keep that loan at that rate.
Worked Example: $400,000, 30 Years, 6.75%
Monthly principal-and-interest payments on a $400,000, 30-year fixed loan, with each point buying a 0.25% rate cut:
| Option | Rate | Monthly P&I | Paid at closing | Monthly saving | Break-even |
|---|---|---|---|---|---|
| No points | 6.75% | $2,594.39 | $0 | — | — |
| 1 point | 6.50% | $2,528.27 | $4,000 | $66.12 | ~61 months |
| 2 points | 6.25% | $2,462.87 | $8,000 | $131.52 | ~61 months |
Break-even is the upfront cost divided by the monthly saving, rounded up: $4,000 ÷ $66.12 ≈ 61 months for one point, and $8,000 ÷ $131.52 ≈ 61 months for two. That is the rule the calculator uses, and it is deliberately conservative: it counts only the monthly payment saving and ignores that the lower-rate loan also pays down principal faster. Counted properly — total payments made plus the balance still owed — the true break-even lands closer to 48 months for both options. Notice the break-even barely changes between one and two points — the saving scales with the cost. What changes is how much you have at risk if you leave early, and how much you gain if you stay.
Over the full 30 years, if you never move and never refinance, one point saves about $19,803 after its $4,000 cost, and two points save about $39,348 after their $8,000 cost. Those are the headline numbers lenders like to show. The honest number is the one for how long you will actually stay.
Monthly principal and interest on a $400,000, 30-year loan, by points bought — hover or tap each bar for details.
The Stay Test: 3 Years, 7 Years, 30 Years
Break-even is a date, not a verdict. What matters is where your life lands relative to it. Using the same $400,000 loan and counting everything — payments made, balance still owed, and the points paid at closing:
| If you stay… | 1 point: net position vs no points | Verdict |
|---|---|---|
| 3 years (36 months) | About $989 worse off | Loses money |
| 4 years (48 months) | About even — the true break-even | Break-even |
| 5 years (60 months) | About $1,026 ahead | Wins, narrowly |
| 7 years (84 months) | $3,039 ahead | Wins |
| Full 30 years | $19,803 ahead | Wins big |
Two points follow the same shape at double scale: at seven years they leave you $6,064 ahead after the $8,000 cost. The pattern is the same in both cases — the first four years are just paying the points back, and the profit only starts after that.
This is why the honest question is not "are points worth it?" but "will I still have this loan in six years?" First homes, job changes and growing families cut many stays short. If there is a real chance you move or refinance within four years, points are a bad bet. If this is a long-term home and rates are unlikely to fall enough to justify a refinance, points are one of the cheapest ways to cut the cost of the loan.
When Points Win — and When They Lose
Points usually win when: you plan to stay well past break-even; you have the cash at closing without draining your emergency fund; the rate reduction per point is at least 0.25%; and you are buying, not refinancing, so the points may be tax-deductible in the year you pay them (points paid on a refinance are generally spread over the life of the loan instead — confirm your situation with a tax professional).
Points usually lose when: you might move or refinance before break-even; the cash would otherwise sit in an emergency fund or pay down higher-interest debt; the lender's rate reduction per point is thin (0.125% per point doubles your break-even to roughly ten years); or rates are widely expected to fall, making a refinance likely anyway. Refinancing before break-even is the classic way points lose money — you pay for a lower rate, then pay it away again.
Also compare points against the alternatives for the same cash. That $4,000 could go toward a larger down payment, which cuts the loan amount and the monthly payment permanently, or toward buying out mortgage insurance, or toward a rate lock with a different lender. Points are one use of $4,000 at closing, not the only one — price them against the others.
Do not drain your reserves for points: the money you pay at closing is gone — it does not come back if you sell early, and it does not reduce what you owe on the home. Keep your emergency fund intact first. Points are an optimisation for spare cash, not a reason to arrive at closing with nothing left.
How to Decide in Ten Minutes
1. Get the lender's offer in writing: rate with no points, rate with one point, rate with two points, and the exact reduction per point. 2. Divide each points cost by its monthly saving to get the break-even in months. 3. Ask yourself, honestly, whether you will still hold this loan — unrefinanced — two years past that date. If the answer is a confident yes, buy the points. If it is a maybe, keep the cash. 4. Check the same maths at a second lender, because the reduction per point is negotiable and varies — a lender offering 0.375% per point changes the answer completely.
Frequently Asked Questions
Are mortgage points worth it?
Only if you keep the loan past break-even — about 48 months on a $400,000 loan at 6.75% buying 0.25% per point, counting payments and the balance still owed. Stay seven years and one point saves about $3,039 after its cost; move in three years and it loses about $989. Your expected stay is the deciding factor.
How much is one mortgage point?
One point is 1% of the loan amount, paid at closing. On a $400,000 loan one point is $4,000; on a $250,000 loan it is $2,500. Each point typically cuts the rate by about 0.25%, though the exact reduction varies by lender.
How do I calculate the break-even point for mortgage points?
Divide the upfront cost by the monthly saving: $4,000 ÷ $66.12 a month ≈ 61 months. That is the point where the savings have repaid the cost; every month after that is profit, and every month before it is still paying the points back.
Are mortgage points tax deductible?
Points paid on the purchase of a primary residence are generally deductible in the year you pay them, subject to IRS rules. Points paid on a refinance are usually spread over the life of the loan instead. Confirm your own situation with a tax professional.
What happens to points if I refinance?
They are lost. Refinancing replaces the loan, and the lower rate you bought ends with it. If you refinance before break-even, the points cost you money — that is the single most common way points lose.
Should I buy points or make a bigger down payment?
Compare both with the same cash. A bigger down payment cuts the loan amount and the monthly payment permanently and survives a refinance; points only pay off if you hold the loan past break-even. If you might move or refinance soon, the down payment is usually the safer use of the money.
Sources: the AsadWebs Mortgage Points Calculator (defaults $400,000, 30 years, 6.75%, 0.25% per point; all payment and break-even figures verified by independent calculation); CFPB — discount points guidance; IRS Topic No. 504 on points deductibility. Figures are illustrative for a fixed-rate loan; your lender's reduction per point will differ. This article explains the maths and is not financial advice.
Related reading: How to Calculate Mortgage Refinance Savings: $278 a Month From 7% to 5.5% · How to Calculate a Mortgage Payment: Monthly Payment, Total Interest and Payoff Date Explained · What Is a Good Debt-to-Income Ratio?
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