Mortgage math

Should you pay points to buy down the rate?

A discount point typically costs 1% of the loan amount and reduces the rate by about 0.25%. The math is simple in form and unforgiving in detail: you pay cash now to save money later. The decision turns on how long you actually hold the loan. Short holds favor no-points; long holds favor points. This calculator runs both paths against your specific numbers and shows the break-even month directly.

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Loan inputs

Loan amount
$
The financed amount, not the home price. Default is a $425K home with 20% down.
Rate without points
%
Term
yrs

Points scenario

Points to buy
Most lenders offer 0–3 points. Lender pricing sheets show exact rate reductions.
Cost per point
% of loan
Typically 1% per point. Some lenders quote slightly higher.
Rate reduction per point
%
Typical range is 0.20–0.30%. Confirm on your specific lender's rate sheet.
Hold period
yrs
How long you actually expect to keep this loan — the most important variable.
How this is calculated

The trade. You pay (points × point cost % × loan amount) at closing. In return, your rate drops by (points × rate reduction per point). Lower rate = lower monthly payment, which compounds across every month you hold the loan.

Break-even. Cost of points ÷ monthly savings = break-even months. If your hold period exceeds the break-even, points pay off. If you sell or refinance before break-even, you lose money on the deal.

What this doesn't model. Tax deductibility (points may be deductible in the year paid for primary residence), opportunity cost on the points cash, refinance probability mid-hold. For tax treatment, work with a CPA. For refinance probability, the answer depends on rate trajectory — which nobody can predict.

Read the full methodology →Defaults reviewed May 2026

The verdict
—
Enter your scenario to see the analysis
No points
Rate—
Monthly payment—
Cost at closing$0
Total over hold—
With points
Rate—
Monthly payment—
Cost at closing—
Total over hold—
Monthly savings —
Break-even —
Net over your hold —
Note: this analysis assumes you keep the loan for the full hold period without refinancing. If you refinance before the break-even month, the points cost was wasted. Plan for hold-period uncertainty.
When points pay off and when they don't

Hold period is the dominant variable.

Discount points are a bet against your future self. You pay cash at closing in exchange for lower payments later. The bet works if you hold the loan long enough for the lower payments to recoup the upfront cost. The bet loses if you refinance, sell, or otherwise terminate the loan before break-even. Points decisions are mostly hold-period decisions in disguise.

The typical break-even math

On a $340,000 loan at 6.75% no-points vs. 6.50% with one point, the points cost is $3,400 and the monthly savings are about $56. Break-even is 60 months — five years. Hold longer than five years, points pay off; hold less, they don't.

Two points buy down to 6.25% for $6,800 in cost and roughly $112/month savings — same break-even (about 60 months) but bigger total savings if you hold long. The break-even doesn't change much across point levels because the cost and savings scale together; what changes is the absolute size of the savings if you hold.

When points usually pay off

  • You're committed to a long hold. Job stable, family settled, location chosen. Buying for retirement-stage hold (15+ years) — points almost always pay off if rates don't fall significantly.
  • Rates are at or below recent normal. If current rates are mid-range historically, refinance probability is lower, which protects the points investment.
  • You have cash beyond the down-payment requirement. Points should never come from your reserves. The cash for points is incremental, after the down payment, closing costs, and 6 months of carrying-cost reserves are all fully funded.

When points usually don't pay off

  • Hold-period uncertainty. Career-flexible buyers, first-time buyers in transitional life stages, anyone with meaningful probability of selling within 5 years should generally skip points.
  • Rates are elevated. If current rates are at the high end of historical norms, the probability of refinancing into a lower fixed-rate within 5-10 years is higher — which would make any points investment a wasted upfront cost.
  • The cash matters more elsewhere. Points come last in the cash-priorities stack. Reserves first, high-interest debt next, retirement contributions, then larger down payment (if it changes PMI math), then points. For most buyers, points come after several other higher-priority uses of marginal cash.

What about negative points (lender credits)?

The reverse trade — the lender pays your closing costs in exchange for a higher rate. Same break-even math, inverted. If you're hold-uncertain or short-hold, lender credits can be a reasonable choice; the higher rate is a small cost paid only as long as you hold the loan. The decision frame is identical: how long will you actually keep this loan?

FAQ

Common points questions.

What's the standard rate reduction per point?
In current markets, one discount point typically reduces the rate by 0.20–0.30%. The exact number varies by lender, loan type, and credit profile. Get the explicit rate sheet from your lender showing the rate at 0, 0.5, 1, and 2 points — the reductions aren't perfectly linear, and the second point sometimes buys a smaller reduction than the first. Treat the 0.25% rule as a starting estimate, not a rate-sheet substitute.
Are discount points tax deductible?
Often yes for a primary-residence purchase loan in the year they're paid, if the points meet IRS criteria (loan secured by the home, points are a typical practice in the area, etc.). Refinance points are generally deducted ratably over the loan term, not in the year paid. The deduction reduces the after-tax cost of points, making the break-even slightly faster. For your specific situation, work with a CPA — generic guidance can mislead.
Are origination fees the same as discount points?
No, but they're often confused. Discount points reduce your rate. Origination fees are the lender's compensation for processing the loan and don't change your rate. Both are typically priced as a percentage of the loan amount and both appear on the Loan Estimate. Make sure you're comparing the total cost (rate + origination + points) across lenders, not just the rate.
Can I negotiate the cost or rate reduction per point?
Sometimes. The rate reduction per point is set by the lender's pricing model and is largely non-negotiable. The cost per point (always 1% of loan amount in standard pricing) is also fairly fixed. What can be negotiated is the no-points rate itself — different lenders price the same loan differently, and shopping 3-5 lenders for the same loan terms typically reveals 0.25–0.50% rate variation. The points decision happens after you've chosen a lender.
How does this interact with rate locks?
Rate lock pricing usually includes the points decision. Locking the no-points rate is one product; locking the with-points rate is a different product. Some lenders charge for longer lock periods; pricing of points within those lock periods can vary. Always confirm the locked rate, the points cost, and the lock duration in writing.
Is this investment advice?
No. The points decision involves your specific cash position, hold expectations, tax situation, and risk tolerance — none of which OwningCost can know. This calculator is a math tool. For loan-product decisions, work with a licensed mortgage professional and your CPA.
Related calculators & guides

Related tools.

Calculator

Amortization Schedule

See the full payment schedule for either rate scenario. Year-by-year and month-by-month views.

 Calculator

Refinance vs. Keep

If you ever refinance, the points calculation runs the same way — closing costs, break-even, total savings.

 Calculator

Cash to Close

Points are a closing-cost line. See the full closing-day cash picture before deciding to add them.

 Risk

How to Reduce Risk

Where points fit in the cash-priorities stack — after reserves, debt payoff, and retirement.

 Reference

Glossary

Discount points, origination fee, par rate, lock — every closing term defined plainly.
See the closing cash picture

Points add to your cash-to-close.

Before deciding on points, run the full closing-day cash picture. The Cash to Close calculator stacks the down payment, closing costs, escrow setup, and any points into one number — so you can confirm the cash is actually available before locking in points.

Open Cash to Close Visit Financing hub