The short version
One discount point costs 1% of the loan, paid in cash at closing, and buys roughly a 0.25% rate cut — permanent. The entire decision reduces to one division: break-even month = points cost ÷ monthly savings. Keep the loan well past that month and the points were a bargain; sell or refinance before it and they were a donation. Run your own numbers in the mortgage points break-even calculator.
What a discount point actually costs
The pricing is brutally simple: 1 point = 1% of the mortgage, due on signing day, on top of the down payment and the rest of closing costs. On a $400,000 loan, one point is $4,000 of real cash. Fractional points are common — lenders routinely quote 0.5 or 1.5. But the rate you get per point is negotiable and changes daily: the 0.25%-per-point rule of thumb is not a law, so enter the two actual quotes into the calculator instead of assuming.
The break-even formula
Three numbers, one division. Points cost = points% × loan. Monthly savings = payment at the no-points rate minus payment at the with-points rate. Break-even month = points cost ÷ monthly savings. Then compare break-even against how long you’ll keep the loan. Comfortably inside the stay? Points win. Beyond the stay? Points lose. Inside but barely? Marginal — ahead on paper, and a few months early would flip it.
Worked example: $400,000 at 7.00% vs 6.625%
Loan $400,000, 30-year fixed. The no-points quote is 7.00% → $2,661.21 a month of principal and interest. The with-points quote is 6.625% for 1.5 points → $2,561.24. Monthly savings: $99.97. Points cost: 1.5% × $400,000 = $6,000. Break-even: $6,000 ÷ $99.97 = 60 months — five years. Net over a 7-year stay: $99.97 × 84 − $6,000 = +$2,397. Verdict: points win — but sell at month 50 and the points cost you $1,001 more than they ever returned.
When points win
Points win when time is on your side. The archetype: a long-term home, a loan you won’t refinance, and a buy-down priced at or better than the 0.25%-per-point rule of thumb. Break-even at half your planned stay or earlier is the comfortable zone — even if life moves your timeline up a year, the margin absorbs it.
When points lose
Points lose when the exit arrives early. Selling at year four on a 60-month break-even strands the unrecovered points — they’re sunk and gone. Refinancing does the same: a new loan resets the clock to zero. Points also lose when the buy-down is poorly priced — 1 point for only a 0.125% cut roughly doubles the break-even — and for cash-strapped buyers, where $6,000 at closing has real opportunity cost.
The tax note
Discount points are generally tax-deductible on a primary residence — the IRS treats them as prepaid mortgage interest, usually deducted ratably over the life of the loan, not all in year one. That softens the effective cost for itemizers but rarely flips a lose into a win — run the break-even without the tax benefit and treat any deduction as a bonus. Confirm the details with a tax professional.
Points vs lender credits: the mirror image
Every buy-down has a mirror image. Discount points: you pay cash now for a lower rate — the long-game move. A lender credit: the lender pays toward your closing costs for a higher rate — the short-game move. Credits win when you’ll refinance or sell soon; points win when you stay. Neither is free money — both trade cash today against rate forever. See where each sits in how closing costs are calculated, and itemize your own in the closing cost estimator.
Frequently asked questions
Are mortgage points worth it?
It depends on one thing: how long you keep the loan. Divide the points cost by the monthly savings — well inside your planned stay means yes, beyond it means no. On the worked example ($400,000, 1.5 points, 7-year stay), break-even is month 60 and the points net +$2,397: worth it, with margin.
How many points should I buy?
As many as the math supports, up to what the lender offers (typically 0–3 points). More points always cost more upfront and always break even later — so run each option through the break-even calculator separately. The break-even month is the whole answer.
Can you negotiate discount points?
Yes. The rate-per-point trade is set on the lender’s rate sheet, and lenders compete. Get two or three loan estimates, compare the same rate with and without points across lenders, and treat a thin buy-down (like 0.125% per point) as a quote worth beating.
Do points make sense on a refinance?
The same math applies, with one warning: if rates fall again you may refinance again — stranding the points. Be extra conservative about the planned stay on a refi, because a second refinance resets the clock on the first one’s buy-down.
Are points the same as origination fees?
No. Origination fees pay the lender for processing the loan and buy you nothing. Discount points buy a lower rate. Both appear on the loan estimate — the points line should show a corresponding rate reduction, or it isn’t really points.
Should I buy points or make a bigger down payment?
Different jobs. A bigger down payment builds equity and can kill PMI on under-20% loans; points buy a lower rate. If PMI is on the table, killing it with down payment usually wins first — model the full payment in the mortgage calculator before spending on points.
Keep going
Bright Side Kit. "Are Mortgage Points Worth the Cost?" https://brightoolbox.com/guides/are-mortgage-points-worth-it/ Accessed October 22, 2026.