Mortgage points (also called discount points) are prepaid interest fees paid upfront at closing in exchange for a lower interest rate. One point equals 1% of your loan amount and typically reduces your rate by 0.25%. On a $400,000 mortgage, one point costs $4,000 and drops your rate from 7.0% to 6.75%. The question isn’t whether lower rates save money — they do. The question is whether the upfront cost is worth it for your specific situation.
2026 Mortgage Points Calculator: The Ultimate Strategy Guide
Mortgage points are prepaid interest fees paid upfront at closing to secure a lower interest rate — typically 0.25% per point. One point typically equals 1% of the total loan amount. Before deciding whether to buy points, you need to calculate your break-even point.
The Break-Even Calculation
The break-even point is how many months it takes to recoup the upfront cost through lower monthly payments. After that point, you save money every month you stay in the home.
Formula: Break-even months = Cost of points ÷ Monthly savings
Example — $400,000 loan, 30-year fixed at 7.0%:
- No points: 7.0% → $2,661/month
- 1 point ($4,000): 6.75% → $2,594/month → saves $67/month → break-even at 60 months (5 years)
- 2 points ($8,000): 6.5% → $2,528/month → saves $133/month → break-even at 60 months (5 years)
When Buying Points Makes Sense
- You’re staying 7+ years — you’ll capture years of savings after break-even
- You have cash beyond your down payment — don’t drain emergency reserves for points
- Rates are high and you’re not planning to refinance soon — locking a lower rate for a long hold is valuable
- You need to lower monthly payment for DTI qualification — buying down can help you qualify for a larger loan
When NOT to Buy Points
- Moving or refinancing within 5 years — you’ll exit before recouping the cost
- The cash is better used as down payment — putting $4,000 toward 20% LTV eliminates PMI, which often saves more per month
- Rates are expected to fall soon — paying points now is wasted if you refinance in 2 years
- You’re close to an LTV threshold — hitting 80% LTV to kill PMI usually beats buying points
Points vs. Larger Down Payment
On a $400,000 home with 10% down, you’re paying PMI of roughly $150–$200/month. That $4,000 point cost applied to your down payment instead moves you $4,000 closer to eliminating PMI. Assuming $175/month PMI, the down payment addition eliminates PMI about 2 months sooner — modest benefit. But if you’re $4,000 away from the 20% threshold entirely, skip the points and kill PMI instead: that saves $175/month vs $67/month from a single point. The down payment wins decisively in that scenario.
Origination Points vs. Discount Points
Not all points are equal. Discount points buy down your rate (the good kind). Origination points are lender fees for processing your loan — they don’t reduce your rate at all. Always ask your lender to clarify which type any quoted points represent. A Loan Estimate (the standardized form lenders are required to provide) itemizes both types clearly on page 2.
Tax Implications
Mortgage points paid on a home purchase are generally deductible in the year paid if you itemize deductions. On a refinance, points must be deducted over the life of the loan rather than all at once. The deduction applies to the amount actually paid, not financed — if you roll points into the loan, they’re typically not deductible upfront. Confirm with a tax professional for your specific situation.
How to Get the Best Deal on Points
Points are negotiable. Always get quotes from at least 3 lenders and compare both the rate and the points cost for that rate. Lenders can structure the same loan differently — one might offer 7.0% with zero points while another offers 6.75% with 1 point. The right choice depends on your break-even timeline, not which number looks better in isolation. Ask each lender for a “float down” option — some allow you to lock a rate now and reduce it once before closing if market rates fall.
What Are Mortgage Points?
Mortgage points are prepaid interest fees paid at closing to secure a lower rate. One point = 1% of loan amount, typically reducing your rate by 0.25%. On a $400,000 loan, 1 point costs $4,000 and drops your rate from 7.0% to 6.75%.
The Break-Even Calculation
Formula: Break-even months = Cost of points ÷ Monthly savings
Example ($400k loan at 7.0%):
- 1 point ($4,000): rate drops to 6.75% → saves $67/month → break-even: 60 months (5 years)
- 2 points ($8,000): rate drops to 6.5% → saves $133/month → break-even: 60 months (5 years)
When to Buy Points
- Staying 7+ years — you capture years of savings after break-even
- Cash reserves beyond down payment — don’t drain emergency funds for points
- Need lower payment for DTI — buying down rate can help you qualify for a larger loan
When NOT to Buy Points
- Moving or refinancing within 5 years — you exit before recouping the cost
- Close to 20% LTV — putting that cash toward eliminating PMI saves more per month
- Expect rates to fall soon — paying points now is wasted if you refinance in 2 years
Points vs. Larger Down Payment
If you’re within $4,000–$8,000 of the 20% LTV threshold, applying that cash toward your down payment to eliminate PMI ($150–200/month savings) typically beats buying a discount point ($50–80/month savings). Once past 20% LTV with PMI eliminated, points become more competitive.
Tax Implications
Points paid on a home purchase are generally deductible in the year paid if you itemize. On a refinance, points must be amortized over the loan term. Confirm with a tax advisor for your situation.
FAQ
Can I ask the seller to pay points?
Yes. Seller concessions can cover discount points — called a seller-paid rate buydown. Most common in buyer’s markets. Ask your agent to negotiate concessions toward a rate buydown if cash reserves are tight.
Do points affect my APR?
Yes. APR spreads the cost of points over the loan term, making APR always higher than the stated rate. Use APR to compare loan offers with different point structures — it gives an apples-to-apples comparison assuming you hold the loan to maturity.
Frequently Asked Questions
How many points can I buy?
Most lenders cap at 3–4 points. The rate reduction per additional point typically diminishes — the first point often saves 0.25%, while a third point might only save 0.125%. Confirm the exact rate reduction for each point with your lender before deciding.
Do points affect my APR?
Yes — APR spreads the cost of points over the loan term, which is why APR is always higher than the stated interest rate. Use APR for comparing loan offers that have different point structures, as it gives an apples-to-apples comparison. However, APR assumes you keep the loan to maturity, so it’s less useful if you plan to sell or refinance early.
Can I ask the seller to pay points?
Yes. Seller concessions can be used to pay discount points — this is called a “seller-paid rate buydown.” It’s most common in buyer’s markets where sellers are motivated. The effect is the same: your rate drops while your cash outlay stays low. Ask your agent to negotiate seller concessions specifically toward a rate buydown if your cash reserves are tight.
