What Are Mortgage Points?
Mortgage points (also called discount points) are upfront fees paid to a lender in exchange for a lower interest rate. Each point typically costs 1% of the loan amount.
How Much Do Mortgage Points Cost?
| Loan Amount | 1 Point Cost (1%) | 2 Points Cost (2%) |
|---|---|---|
| $200,000 | $2,000 | $4,000 |
| $300,000 | $3,000 | $6,000 |
| $400,000 | $4,000 | $8,000 |
How Much Can Mortgage Points Save?
Buying points lowers your mortgage rate, reducing monthly payments and long-term interest costs.
| Loan Amount | Interest Rate w/o Points | Interest Rate w/ 1 Point | Monthly Savings | Break-even Time |
|---|---|---|---|---|
| $300,000 | 7.0% | 6.75% | $50 | 5 years |
| $400,000 | 7.0% | 6.625% | $70 | 4.5 years |
When Buying Points Makes Sense
Buying points can be a good strategy if:
- ✅ You plan to stay in the home long-term (5+ years).
- ✅ You want lower monthly payments to improve cash flow.
- ✅ You have extra cash upfront to invest in points.
- ✅ The break-even period aligns with your homeownership timeline.
When Buying Points Is NOT Worth It
Avoid paying for points if:
- ❌ You plan to sell or refinance within a few years.
- ❌ You need extra cash for moving, renovations, or an emergency fund.
- ❌ Your lender offers a competitive rate without points.
Mortgage Points vs. Down Payment
If you have extra cash, should you buy points or put more money toward the down payment? Here’s a comparison:
| Option | Pros | Cons |
|---|---|---|
| Buying Points | ✔ Lowers interest rate ✔ Reduces monthly payment | ❌ Requires upfront cash ❌ Long break-even period |
| Higher Down Payment | ✔ Lowers loan balance ✔ Avoids PMI if 20% down | ❌ No impact on interest rate ❌ Less cash flexibility |
Are Mortgage Points Tax Deductible?
Yes! If you itemize deductions, mortgage points may be fully deductible in the year you pay them (for a home purchase loan).
“Mortgage points can be a great investment—but only if you stay in the home long enough to benefit.”
— Sarah Thompson, Mortgage Expert
Frequently Asked Questions
How do I know if mortgage points are worth it?
Calculate your break-even period—if you plan to stay in the home longer, points could be a smart choice.
Can I finance mortgage points into my loan?
Some lenders allow rolling points into the loan, but it increases total interest paid.
Do all lenders offer mortgage points?
No, but most do! Compare lenders to find the best rate and point structure.