Mortgage Points vs No Points: Buyer’s Guide

The 60-second answer

Buy points if you’ll keep the exact loan well past your break-even point — usually 5 to 7 years at 2026 pricing. One point on a $400,000 loan costs $4,000, typically buys about 0.25%% off the rate, and saves roughly $66 a month — breaking even in about 61 months. Skip points if you might sell or refinance within a few years, if the cash would get you to 20%% down and kill PMI, or if you expect rate cuts that would trigger a refi. And if the seller pays your points, take the deal every time — a lower rate at zero cost to you is the best case in the book. Run your quotes in the mortgage points comparison calculator.

What a point actually is

A discount point is prepaid interest: 1%% of your loan amount, paid once at closing, in exchange for a lower rate for the life of the loan. On a $400,000 mortgage that’s $4,000 per point. Fractional points are common, and your Loan Estimate lists discount points as their own line item so you can see exactly what you’re paying.

Two things people confuse with discount points. Origination points are the lender’s fee for making the loan — they don’t lower your rate one basis point. And lender credits are the mirror image of points: the lender pays you at closing in exchange for accepting a higher rate. Points and credits are one continuous menu — ask your loan officer for the rate at 0 points, 1 point, and 2 points, and pick your spot on the menu instead of accepting the default.

The break-even formula (the whole game)

Break-even months = point cost ÷ monthly savings. That’s it. On a $400,000 loan, one point costs $4,000; at a 0.25%% rate cut the payment drops about $66 a month; $4,000 ÷ $66 ≈ 60 months. Every month past month 60 is pure profit; every month before it, you’re still paying off the $4,000.

Two subtleties the simple version misses. First, the starting rate barely matters: at 6.5%% or 7.5%% instead of 7.0%%, the break-even moves by about one month for a 0.25%% cut. What matters is the cut per point — 0.25%% buys a ~5-year break-even, 0.20%% buys ~6.2 years, 0.125%% buys ~10 years. Ask each lender for the rate at zero points and at one point, subtract, and you know your row. Second, the simple break-even ignores opportunity cost: if that $4,000 would earn 4%% in savings, the true break-even stretches about 7 months further. It changes the timing, rarely the decision.

Worked example: $400,000 at 6.75% vs 6.50%

Late-2026 pricing for a 740-FICO borrower with 20% down. One point ($4,000) buys the rate from 6.75% down to 6.50%:

• Payments: $2,594 a month at 6.75% vs $2,528 a month at 6.50% — $66.12 a month of savings.
• Break-even: $4,000 ÷ $66.12 ≈ 60 months (5.0 years).
• 10-year hold, honest math: payments plus the $4,000 plus the remaining balance — because the lower rate also leaves you owing less — comes out $6,034 ahead for buying the point.
• Full 30-year hold: $19,803 of lifetime savings on a one-time $4,000 cost. This is the best case, and it’s why points suit forever homes.

Three mistakes buyers make

• Mistake 1: Buying points while planning a refi. Refinancing replaces the old loan and resets the break-even clock — the points on the first loan are largely gone. If there’s a realistic chance you’ll refinance within your break-even window (say, because rate cuts are widely expected), skip the points and capture the lower rate on the refi instead. The typical American homeowner keeps a loan 11–13 years, but that average hides millions of 3-year refis.
• Mistake 2: Spending the PMI money on points. If $4,000 would take you from 10%% down to a bigger down payment — especially across the 20%% line that kills PMI — the down payment almost always wins. PMI elimination has no break-even period; points need five years. Above 80%% loan-to-value with no PMI in play, run the points break-even on its own merits.
• Mistake 3: Buying points without shopping the menu. The buy-down per point varies by lender from 0.125%% to 0.375%% — at 0.125%% the break-even is a decade, at 0.375%% it’s barely three years. Get three Loan Estimates, compare the price per point at each lender, and consider the alternatives: a temporary buydown (cheaper, shorter) or a lender credit (cash to you for a higher rate) might fit better.

The bottom line

Points are neither smart nor dumb — they’re a price for time. Long, certain hold with spare cash at closing: the 0.25%%-per-point menu is one of the better deals in the mortgage market. Short or uncertain hold, a refi on the horizon, or PMI money on the table: keep the cash. Either way, the decision is one division problem — run the points comparison calculator with your loan amount, both rate quotes, and your honest exit year before you sign.