Mortgage rates are hovering in the mid-6% range for a 30-year fixed loan, and lenders are pushing a tempting pitch: pay a little extra upfront, knock your rate down, and save thousands over time.
It's called buying discount points, and whether it's worth it depends on a single number most buyers never calculate before signing.
One discount point costs 1% of your loan amount and typically lowers your interest rate by about 0.25%.
On a $400,000 mortgage, that's $4,000 upfront for a rate that might drop from 6.5% to 6.25%.
Your monthly payment falls by roughly $60.
Divide the $4,000 by that $60, and you get about 67 months — a little over five and a half years — before you break even.
That break-even point is the whole ballgame.
Stay in the home longer than that, and the points save you real money.
Sell, refinance, or move before then, and you've handed the lender thousands of dollars for nothing.
The average American homeowner now stays put for about 10 to 12 years, but first-time buyers often move sooner than they expect.
Paying points also means parting with cash at closing — money that can't earn interest, cover an emergency, or fund a kitchen remodel.
In a tight housing market where buyers are already stretching for down payments and closing costs, draining savings for a slightly lower rate can leave you house-poor.
Lenders love points partly because they get paid today, not years from now.
There's a second option worth knowing: lender credits.
You accept a higher rate, and the lender covers some of your closing costs.
It's a reasonable move if you're short on cash, plan to refinance when rates drop, or expect to move within a few years.
You pay more monthly, but you keep your savings intact.
Run your own break-even math with your actual loan number, not a lender's glossy estimate.
Ask for a Loan Estimate showing both scenarios side by side, and compare the total cost over the years you honestly expect to stay.
If the break-even lands inside your timeline with room to spare — and you still have a healthy emergency fund afterward — points can make sense.
If it's close, or your plans are fuzzy, keeping the cash usually wins.
Points are tax-deductible in the year you pay them on a purchase mortgage, but the rules get complicated on refinances, so check with a tax professional.
Some lenders also offer "no-cost" mortgages that aren't really free — the costs are just baked into a higher rate.
And rate buydowns from sellers, common in slower markets, can deliver the same benefit without you paying a dime.
The bottom line: points aren't a scam, and they aren't a magic trick.
They're a bet that you'll stay in the house long enough to come out ahead.
Make that bet with a calculator, not a gut feeling.
My take: most buyers should skip points unless they're confident they'll stay put for at least seven years and still have cash left over.
A lower rate feels great, but flexibility and an emergency fund are worth more than a rounding error on your payment.
Final Thoughts
Ask your lender to show both options in writing — then decide with numbers, not sales pressure.