Mortgage rates have been bouncing around in the mid-to-high 6% range for months, and lenders are dangling a familiar carrot: pay more upfront, get a lower rate.
It's called buying points, and it sounds like free money over time.
It isn't free, and "over time" is doing a lot of heavy lifting in that sentence.
One discount point typically costs 1% of the loan amount and shaves somewhere between 0.15% and 0.25% off your interest rate, depending on the lender and the day.
On a $400,000 loan, one point runs you $4,000.
That money is paid at closing, out of pocket, and it does not reduce your loan balance or build a single dollar of equity.
The break-even math is where people get tripped up.
If spending $4,000 lowers your monthly payment by $85, you need roughly 47 months — about four years — just to get your money back.
Sell, refinance, or pay the loan off before that point and you've handed the lender a gift.
The mortgage industry knows exactly how many borrowers refinance within five years, and it prices points accordingly.
The lender gets cash today and a longer-lasting loan, since a lower payment makes you less likely to refinance away.
Loan officers often earn more on points, and the rate buydown makes their quote look competitive next to the guy down the street.
It just means the pitch isn't neutral advice.
There's a second option worth knowing about: lender credits.
You accept a slightly higher rate and the lender covers some closing costs, which cuts the cash you need at the table.
If you're stretched thin on down payment and reserves, that trade can matter more than a lower rate on paper.
First, how long you'll realistically stay in the home.
Five years or more, points can pencil out.
Second, what else that cash could do — a higher down payment, an emergency fund, or paying down a 22% credit card.
Paying off revolving debt at 22% beats saving 0.2% on a mortgage every single time.
Ask the loan officer for a side-by-side: same loan, one quote with points and one without, showing the rate, the monthly payment, the total cash at closing, and the break-even month.
If they can't produce that in a few minutes, that's your answer.
And remember that points are negotiable in a way that rates often aren't — a competing quote is real leverage.
One more thing worth flagging: discount points are generally tax-deductible in the year you pay them on a purchase loan, and over the life of the loan on a refinance.
That softens the math a bit, but it's not a reason to buy points on its own.
Our take: points are a bet on staying put, and most Americans move or refinance sooner than they expect.
Final Thoughts
If you can't clearly say you'll be in that house past the break-even month, keep your cash and take the higher rate.