Mortgage rates have been bouncing around the mid-6% range for months, and that has more buyers than ever staring at the "discount points" line on their Loan Estimate.
It sounds like a smart trade: pay a little extra upfront, lock in a lower rate, save thousands over 30 years.
The math, however, has gotten a lot less friendly.
A discount point typically costs 1% of your loan amount and shaves roughly 0.25% off your interest rate.
On a $400,000 mortgage, that's $4,000 upfront to drop your rate from, say, 6.5% to 6.25%.
Sounds reasonable — until you calculate how long you'd need to stay in the home just to break even.
Here's the rough math lenders won't put on a billboard.
That $4,000 buy-down saves you about $58 a month on a 30-year loan.
Divide the upfront cost by the monthly savings and you're looking at roughly 69 months — nearly six years — before you recoup a dime.
Move, refinance, or sell before year six, and you handed the lender free money.
That break-even window has stretched because the gap between rates with and without points has narrowed.
When rates were 7.5% and a buy-down could knock you to 6.5%, points paid off fast.
At today's compressed spreads, the payoff is slower and less certain.
There's also a tax wrinkle that trips people up.
Points on a purchase mortgage are generally deductible in the year you pay them, but points on a refinance usually have to be deducted over the life of the loan.
That changes the real cost, and plenty of borrowers don't find out until their accountant tells them.
The better move for many buyers right now is the opposite of what sales pitches push: take the no-points rate, keep your cash, and consider a "lender credit" instead.
A lender credit is essentially negative points — you accept a slightly higher rate in exchange for the bank covering some closing costs.
If you plan to refinance when rates fall, that's often the smarter trade because you're not sinking money into a rate you intend to replace.
Points still make sense in one clear scenario: you're certain you'll stay in the home well past the break-even date and you have cash you don't need for an emergency fund or a higher-yield savings account.
If you're maxing out your down payment and draining savings to buy points, the math is working against you.
Ask your loan officer for two Loan Estimates side by side — one with points, one without — and demand the break-even month in writing.
Any lender who can't produce that number in 30 seconds is selling, not advising.
Our take: in this rate environment, the no-points path wins for most buyers, especially anyone who might refinance within a few years.
Final Thoughts
Points aren't a scam, but they're a bet on staying put — and most Americans don't stay in a mortgage long enough to collect.