Mortgage rates have been hovering near 6.5% for a 30-year fixed loan, and lenders are pushing a tempting offer: pay extra upfront and shave your rate.
It's called buying points, and the pitch sounds like a no-brainer.
Put down 1% of your loan amount, get a lower rate for the life of the loan.
That discount costs real money, and you need to stay in the house long enough to earn it back.
On a $400,000 loan, one point runs about $4,000 and typically cuts your rate by roughly 0.25%.
Divide the cost by the monthly savings, and you're looking at a break-even point of nearly six years.
The average American homeowner moves or refinances well before that.
If you sell in year three, you handed the lender thousands of dollars and got almost nothing back for it.
Points are paid with cash at closing, money that could sit in a high-yield savings account earning 4% or more right now.
When you compare a guaranteed 4% return on your cash against saving 0.25% on your mortgage, the math gets a lot less flattering.
You're essentially paying thousands today to save a modest amount spread over decades.
Temporary rate buydowns are a different animal and worth a look if you're rate-sensitive.
Lenders and builders sometimes cover part of the cost, dropping your rate for the first year or two.
That can ease the early pinch while you wait for rates to fall.
Just read the fine print, because the payment jumps back up on a set date.
If you're certain you'll stay put for a decade and you have cash left over after closing, they can work.
For everyone else, keeping the cash and shopping a few lenders for the lowest base rate is the smarter move.
One more thing worth checking: a no-points loan often comes with a slightly higher rate but no upfront cost.
Ask your lender to quote both side by side in writing.
If the difference is small, the flexibility of keeping your money usually wins. **Our take:** Points aren't a scam, but they're oversold to buyers who won't stick around long enough to benefit.
Run the break-even math on your own loan before you sign anything, and treat any cash you'd spend on points as money you might never see again.
Final Thoughts
In a market where rates move fast, flexibility beats a small permanent discount most of the time.