Your lender offers to lower your interest rate if you pay discount points. One point costs 1% of the loan amount and typically reduces your rate by 0.25%. On a $300,000 loan, one point costs $3,000. Is it worth it? The answer depends entirely on your situation, and the math is surprisingly simple once you understand it.
Mortgage discount points are prepaid interest. You pay money upfront at closing to receive a lower interest rate for the life of your loan. Each point costs 1% of your loan amount. The rate reduction per point varies by lender but typically ranges from 0.125% to 0.25% per point.
Points are separate from origination fees, though some lenders confusingly call their origination fee a "point." Discount points are optional and negotiable. You can buy fractions of points — 0.5 points, 0.75 points, etc. — for proportional rate reductions.
The math is straightforward: divide the cost of the points by the monthly savings they create. If one point costs $3,000 and saves $50/month, your breakeven is 60 months (5 years). If you keep the mortgage past the breakeven point, buying points saves money. If you sell or refinance before reaching breakeven, you wasted money.
Here is a real example with 2026 rates. On a $350,000 loan at 6.5%: monthly P&I is $2,212. Buy one point for $3,500, reducing the rate to 6.25%: monthly P&I drops to $2,155. Monthly savings: $57. Breakeven: $3,500 divided by $57 = 61 months (about 5 years and 1 month).
After the breakeven point, you save $57 every month for the remainder of the loan. Over the remaining 25 years, that is $17,100 in savings — a strong return on a $3,500 investment. But only if you actually keep the loan that long.
Points make sense when three conditions align: you plan to stay in the home long past the breakeven point, you have the cash to buy points without compromising your emergency fund or down payment, and the rate reduction per point is at least 0.20%.
Ideal scenarios for buying points include purchasing your forever home with no plans to move, locking in a rate during a period of rising rates, and having substantial cash reserves beyond your down payment and closing costs. If you are putting 20% down, covering closing costs, and still have 6+ months of expenses saved, points can be a smart use of excess capital.
Do not buy points if you might sell within 5 to 7 years — the typical breakeven window. Do not buy points if it means reducing your down payment below 20% (adding PMI negates much of the savings). Do not buy points if it depletes your emergency fund, because the guaranteed savings of 6 months of expenses in reserve outweighs the potential savings of a rate reduction.
Points are also a poor choice if rates are expected to drop significantly. If you buy points today and rates fall 1% in two years, you will likely refinance anyway — and you cannot recover the cost of those original points. In a declining rate environment, skip points and plan to refinance later.
If you have extra cash, should you buy points or increase your down payment? Usually, a larger down payment wins. Going from 10% to 20% down eliminates PMI (saving $150 to $300/month), reduces your loan amount (saving interest on the eliminated amount), and gives you instant equity.
On a $350,000 home, the jump from 10% to 20% down is $35,000 extra. That eliminates roughly $145/month in PMI and reduces monthly P&I by about $210. Total savings: $355/month. Compare that to spending $3,500 on a point for $57/month savings. The larger down payment wins decisively.
Discount points on a purchase mortgage are generally tax-deductible in the year you pay them, as long as points are within the normal range for your area and you meet other IRS criteria. Points on a refinance must typically be deducted over the life of the loan instead.
However, with the higher standard deduction, many homeowners no longer itemize. If you take the standard deduction, the tax benefit of points disappears entirely. Factor your actual tax situation — not the theoretical deduction — into the decision.
Lenders have flexibility on point pricing. When comparing offers, ask each lender for quotes with zero points, one point, and no-point/lender-credit options. This gives you a full picture of the tradeoff between upfront cost and ongoing rate.
Some lenders offer negative points (lender credits): you accept a higher rate in exchange for the lender covering some of your closing costs. If you plan to sell or refinance within 3 to 5 years, negative points can be a better deal than buying discount points.
Points are a math problem, not a sales pitch. Calculate the breakeven, compare it to your realistic timeline, and make the rational choice. If you will keep the loan for 10+ years and have the cash to spare, points are usually worth it. If there is any chance you will move or refinance within 5 years, skip them and keep your cash.