Mortgage rates have been bouncing around 6% to 7% for most of the past year, and that volatility has revived an old question at the closing table: should you pay points to buy down your rate, or keep the cash in your pocket?
Lenders love to pitch the discount, but the math only works for a specific kind of borrower.
Get it wrong, and you hand the bank thousands of dollars for nothing.
One discount point costs 1% of your loan amount.
On a $400,000 mortgage, that's $4,000, and it typically shaves about 0.25% off your interest rate.
Pay two points, and you're in for $8,000 to knock roughly half a percentage point off the rate.
The pitch sounds simple: lower rate, lower monthly payment.
The catch is buried in a number most buyers never calculate—the breakeven point.
Breakeven is the month when your accumulated monthly savings finally equal what you paid upfront.
Say you spend $4,000 to cut your payment by $65 a month.
Divide 4,000 by 65, and you're looking at about 61 months—a little over five years—before you've broken even.
Sell the house, refinance, or move before that mark, and you've lost money on the deal.
That's not a scam, but it's a real risk in a country where the typical homeowner stays in a house for roughly a decade or less.
The tricky part is that the math changes fast depending on your loan size and how long you plan to stay.
On a jumbo loan in a high-cost market, points can be worth serious money because the monthly savings are bigger.
On a smaller loan, the same points cost less but save less too, and the breakeven can stretch past the point where most people sell.
There's also a timing angle right now: if rates fall enough in the next couple of years, refinancing wipes out the benefit of points you paid on the original loan entirely.
So who should actually consider paying points?
Borrowers who plan to stay put for the long haul, have cash beyond their down payment and emergency fund, and expect to keep the loan for well past the breakeven date.
Anyone stretching to cover closing costs, anyone likely to move within a few years, and anyone betting on a refinance.
If paying points drains your savings, the lower payment isn't worth the thin cushion.
Before you decide, ask your lender for a loan estimate showing the cost of points and the resulting monthly payment side by side—then do the division yourself.
Ask how long the breakeven is in months, not years, because months make the tradeoff feel real.
And remember that seller-paid points are a negotiating tool: in a soft market, you can sometimes get the seller to cover them instead of cutting the price.
The honest take: points are not a discount, they're a bet that you'll stay in the home and the loan long enough to win.
For the right buyer, that bet pays off in real money every month.
Final Thoughts
For everyone else, keeping the cash is the smarter move—flexibility is worth more than a slightly smaller payment.