Mortgage rates are hovering in the mid-to-high 6% range for a 30-year fixed loan, and lenders are dangling a familiar trade-off in front of buyers: pay more upfront to knock your rate down, or keep cash in your pocket and accept a higher monthly bill.
It's called buying points, and whether it pays off depends on how long you plan to stay in the home.
One discount point costs 1% of your loan amount and typically shaves about 0.25% off your interest rate.
On a $400,000 mortgage, that's $4,000 upfront to cut your rate from, say, 6.75% to 6.5%.
Your monthly principal and interest payment drops by roughly $64.
Divide your $4,000 by that $64, and you get a break-even point of about 62 months — just over five years.
That break-even number is the whole ballgame.
Stay in the house longer than the break-even window, and buying points saves you money over the life of the loan.
Sell, refinance, or move before you hit it, and you've handed the lender a few thousand dollars for nothing.
The calculus gets messier in a market where rates keep sliding.
If you buy points today and rates fall to 5.5% next year, you'll likely refinance — and all those upfront points vanish.
That's the trap a lot of buyers fell into in 2020 and 2021, paying points on loans they replaced within 18 months.
There's also a tax wrinkle worth knowing.
Points paid on a purchase mortgage are generally deductible in the year you pay them, while points on a refinance usually have to be spread across the loan's life.
Talk to a tax professional about your specific situation before counting on any deduction.
On the no-points side, the appeal is simple: lower closing costs and more flexibility.
If you're a first-time buyer scraping together a down payment, or you expect to move within a few years for work, keeping that cash liquid often beats chasing a slightly lower rate.
You can also ask the seller to cover points as part of your negotiation — it's one of the few closing-cost concessions still working in buyers' favor in many markets.
You don't have to choose between zero points and maximum points.
Lenders will quote you a range — often something like 0, 1, or 2 points — and you can pick the spot that matches your timeline and budget.
Ask for a loan estimate showing all three side by side, and compare the total cost over five, seven, and ten years, not just the monthly payment.
One more factor: your lender might offer a "lender credit" instead — the reverse of points, where you accept a higher rate in exchange for help covering closing costs.
That's essentially selling points back, and it can make sense if cash is tight and you plan to refinance later anyway.
Run your own break-even math before you sign anything, and be honest about your timeline.
Final Thoughts
The right answer isn't about which option sounds smarter — it's about which one fits how long you'll actually own the home.