Direct Answer
One discount point costs 1% of the loan ($3,500 on $350,000) and often cuts rate by ~0.25%, saving ~$55/month. Break-even is about 64 months — points pay only if you keep the loan longer than that.
Use the Mortgage Points Calculator for your loan size and hold period.
Last verified on: June 28, 2026
Editorial note: This guide is for educational planning only — not legal, tax, lending, or medical advice. Verify figures with official sources and qualified professionals before making decisions.
Research method: Daily Calcs reviewed primary government, regulatory, and industry sources and modeled calculator scenarios on June 28, 2026.
Points Break-Even Table ($350,000 loan)
| Points paid | Cost | Rate drop | Monthly savings | Break-even |
|---|---|---|---|---|
| 1 | $3,500 | 0.25% | ~$55 | 64 mo |
| 2 | $7,000 | 0.50% | ~$110 | 64 mo |
| 0 | $0 | — | $0 | — |
How Discount Points Work on Your Loan Estimate
Each discount point equals 1% of the loan amount paid at closing. Lenders quote a specific rate reduction per point — often 0.25% per point, but pricing varies by market and borrower profile.
The Consumer Financial Protection Bureau (CFPB) explains that points and lender credits move in opposite directions on the same Loan Estimate.
Worked Example: $350,000 Loan at 6.75% Base Rate
| Scenario | Rate | P&I payment | Upfront cost |
|---|---|---|---|
| 0 points | 6.75% | $2,270 | $0 |
| 1 point | 6.50% | $2,212 | $3,500 |
| 2 points | 6.25% | $2,155 | $7,000 |
Monthly savings (1 point): $58. Break-even: $3,500 ÷ $58 ≈ 60 months.
If you sell or refinance before month 60, points likely lose money.
Points vs Larger Down Payment (Below 20% Equity)
| Option | $7,000 used for… | Effect |
|---|---|---|
| 2 discount points | Lower rate on full loan | Saves ~$110/mo if break-even reached |
| Down payment | Reduces loan to $343,000 | Lowers P&I ~$45/mo + may reduce private mortgage insurance (PMI) |
Below 20% down, extra down payment often beats points because it reduces PMI and principal permanently.
What to Do Next
- Get Loan Estimate with and without points from your lender.
- Calculate break-even months in the Mortgage Points Calculator.
- Compare hold period — plan to keep loan 5+ years?
- Consider down payment first if below 20% equity.
- Negotiate seller credits toward points instead of price reduction if allowed.
Points Decision Checklist
- Keeping the loan 7+ years?
- Already at 20%+ down?
- Have cash after emergency fund?
- Rate spread is ≥0.25% per point?
Common Mistakes When Buying Points
Paying points when you plan to sell or refinance within 4 years rarely recovers cost. Another error is comparing points without reading the Loan Estimate — point-to-rate ratios are not standardized across lenders.
Choosing points over down payment when below 20% equity often increases lifetime cost via PMI that extra down payment would eliminate.
Assumptions and Limitations
Break-even math assumes you keep the loan unchanged until payoff — refi, sale, or extra principal payments shorten the recovery window. Point pricing varies daily with bond markets and lender margin.
Tax deductibility of points depends on loan purpose, occupancy, and IRS rules — consult a tax professional; this guide is not tax advice.
Ask your lender for the exact rate reduction per point on your Loan Estimate — break-even months change if the ratio is not 0.25% per point.
Your hold period is the single biggest factor in the points decision. If you expect to move or refinance within five years, skip points entirely — you likely won’t reach break-even. Planning to stay a decade or more? Points almost always pay off at that horizon, especially if you can negotiate a better point-to-rate ratio from the lender.
Calculator Methodology
The Mortgage Points Calculator divides total point cost by monthly payment savings to find break-even months and total interest saved over your hold period.
Assumptions: Linear rate reduction per point; fixed 30-year amortization.
Limitations: Actual point pricing varies by lender and market — use your Loan Estimate.
How to stress-test your result
Run a best case and worst case input side by side. Add 0.25% to rate or 10% to tax and insurance. If the result breaks your budget at the worst case, adjust your assumptions before committing.
Related Reading
- Closing Costs Explained (2026) — where points appear
- How Mortgage Rates Affect Payment — rate sensitivity
- Mortgage Points Calculator — break-even tool
Official and Supporting Sources
- Consumer Financial Protection Bureau (CFPB): What are discount points?
- IRS: Topic 504 — Home mortgage points
Next Step
Run break-even with the Mortgage Points Calculator before paying points at closing.
Frequently Asked Questions
What does buying down a mortgage rate mean?
Buying down the rate means paying discount points at closing — each point equals 1% of the loan amount — in exchange for a lower interest rate. One point on a $350,000 loan costs $3,500. A typical buydown might reduce rate by 0.25% per point, saving roughly $55 per month on that loan size. The lender quotes specific point-to-rate ratios on your Loan Estimate.
When does buying mortgage points make sense?
Points pay off when you keep the loan past the break-even point — months to recover point cost through lower payments. On $3,500 for one point saving $55/month, break-even is about 64 months (5.3 years). If you plan to sell or refinance within four years, skip points. Long-term owners and buyers with extra cash at closing benefit most.
How do I calculate mortgage points break-even?
Break-even months = Total point cost / Monthly payment savings. Example: $7,000 for two points saving $110/month = 64 months. Add lost investment return on cash used for points if you would otherwise invest at 5% to 7%. The Mortgage Points Calculator runs break-even with your loan amount, rate reduction, and hold period.
Seller-paid buydown vs buyer-paid points: What is the difference?
A seller-paid buydown (2-1 or 3-2-1 temporary buydown) reduces payments in early years using seller concessions — good for cash-flow in year one. Permanent discount points paid by the buyer lower the rate for the life of the loan. Seller concessions are capped by loan type — typically 3% to 9% of price. Negotiate seller credits toward permanent points for lasting savings.
Are mortgage points tax deductible?
Discount points on a purchase mortgage for a primary residence may be deductible in the year paid if they meet IRS tests — consult a tax professional. Points on refinance are usually amortized over the loan life. Seller-paid points may affect buyer deduction eligibility. This guide is educational, not tax advice.
Points vs larger down payment: Which saves more?
A larger down payment reduces loan amount, eliminates private mortgage insurance (PMI) faster, and lowers total interest — often beating points if you are below 20% equity. Points only affect rate on the remaining balance. Putting an extra $7,000 down on a $350,000 purchase instead of buying one point reduces principal permanently. Run both scenarios — down payment usually wins below 20% equity.
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