Mortgage rates have been bouncing around 6% to 7% for months, and lenders are pushing hard on a classic add-on: discount points.
Pay a little extra upfront, the pitch goes, and you lock in a lower rate for the life of the loan.
One point costs 1% of your loan amount and typically trims your interest rate by about 0.25%.
On a $400,000 mortgage, that's $4,000 out of pocket to shave a quarter of a percentage point.
The math only works if you stay in the home long enough to earn back that $4,000 through lower monthly payments.
That break-even point often lands somewhere between five and eight years.
First-time buyers in recent years have been staying in their homes for far less time than previous generations, and with rates expected to ease, plenty of owners are already planning to refinance.
If you pay thousands for points and then refinance two years later, you've handed the lender free money.
There's a second trap that trips up even careful shoppers.
Points and origination fees can look similar on a Loan Estimate, and some lenders quote a "no points" rate that quietly bundles the cost into other line items.
Always compare the annual percentage rate, or APR, not just the headline rate.
The APR folds in points and most closing costs, so it's a better apples-to-apples number when you're weighing two offers.
When does buying points actually make sense?
It depends on three things lining up: you have cash beyond your down payment and emergency fund, you're confident you'll stay put well past the break-even point, and you'd rather have a smaller monthly bill than a bigger savings account.
Paying points can also be worth a look if you're close to retirement and want the lowest possible fixed payment for the long haul.
Ask your loan officer for the break-even month in writing, not just the monthly savings.
Compare a points quote against a no-points quote from at least two other lenders on the same day, since rates move daily.
And if you're short on cash, skip the points entirely; a smaller down payment or a funded emergency account will do more for your finances than a slightly lower rate.
In a soft market, some sellers will cover discount points as a concession.
That's the rare case where points are close to a free lunch, since you get the lower rate without spending your own money.
It's worth asking for in your offer, especially on homes that have sat on the market a while.
The bottom line: points are a bet that you'll stay in the loan long enough to win.
In a market where rates are forecast to fall and homeowners are moving more often, that bet is shakier than it used to be.
Our take: run the break-even math on your actual numbers before anyone talks you into points, and treat a refinance-friendly future as a reason for caution rather than a reason to prepay.
Final Thoughts
If the numbers don't clearly favor points within five years, keep your cash and take the no-points rate.