How mortgage points work
A discount point is an upfront fee of 1% of the loan amount that lowers your interest rate, often by around 0.25 percentage points, though it varies by lender and market. Paying points makes sense only if you keep the loan long enough for the lower payment to repay the cost.
Example: on a $350,000 30-year loan, 1 point costs $3,500 and cuts the rate from 6.75% to 6.5%. The payment drops from $2,270.09 to $2,212.24, saving $57.86 a month, so the points break even after 61 months, about 5 years. The net gain also counts the faster principal paydown at the lower rate.
When points aren't worth it
- You may sell or refinance within a few years. Most mortgages are paid off or refinanced well before 30 years.
- Rates may fall, making a refinance likely.
- Cash is tight: a bigger down payment or emergency fund can be worth more than a slightly lower rate.
Points paid on a purchase loan are generally deductible in the year paid if you itemize. Compare the full loans with the mortgage calculator.
Frequently asked questions
How much does one mortgage point lower the rate?
There's no fixed rule. Lenders often lower the rate by about 0.125 to 0.25 percentage points per point. Ask each lender for its exact pricing.
Are mortgage points worth it?
They're worth it when you keep the loan past the break-even point, typically 4 to 7 years. If you might move or refinance before then, you lose money.
Are mortgage points tax deductible?
Points on a loan to buy your main home are generally deductible in the year you pay them if you itemize. Points on a refinance are usually deducted over the life of the loan.
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