Walk into any mortgage closing and you'll face a fork in the road that can cost or save you thousands: pay points upfront to knock down your interest rate, or take the higher rate and keep your cash.
Lenders pitch both with equal enthusiasm, which should tell you something.
The right answer depends entirely on how long you plan to stay put, and the sales pitch rarely leads with that.
One discount point typically costs 1% of your loan amount and shaves roughly 0.25% off your rate.
On a $400,000 mortgage, that's $4,000 upfront to save about $1,000 a year in interest initially.
Simple division says you break even in four years.
Sell or refinance sooner, and you basically donated that money to the bank.
That math has gotten more interesting as rates have bounced around.
When rates were near 3%, buying points looked pointless — there was little room to cut.
In today's higher-rate environment, the discount is bigger in dollar terms, which makes points more tempting.
It also makes the break-even calculation more consequential, because you're tying up real cash that could cover an emergency fund or a smaller down payment.
The catch nobody advertises: break-even assumes you keep that exact loan for the full period.
Roughly two-thirds of homeowners refinance or sell within ten years, and a meaningful chunk move much sooner than that.
If you pay points and refinance in three years, you've lit that money on fire.
Points only pay off if the loan sticks around past the break-even date — and you can't know that in advance.
Paying points gives the lender cash today, which is great for them and neutral-to-risky for you.
Taking the no-points route keeps your money liquid and your options open.
If rates fall, you refinance and never look back.
If you paid points, you get to swallow the loss and start over.
The no-points path is the more forgiving one when your plans change.
Buyers with a long time horizon, a fully funded emergency fund, and a rate high enough that the discount is meaningful.
Even then, ask the lender for a loan estimate showing the exact break-even month, not a vague "it pays for itself." If a loan officer can't or won't put that number in writing, that's your answer.
And always compare the no-points offer from a second lender — sometimes a different lender's base rate beats the first lender's rate after points, which makes the whole exercise moot.
One more trap: sellers and agents sometimes push buyers to "buy down the rate" to afford a bigger house.
That's not a savings strategy; that's stretching your budget with extra upfront cost.
If you need points to qualify, you're buying too much house.
The honest takeaway is that points are a bet on the future you can't control.
For most buyers — especially first-timers and anyone unsure about staying five-plus years — keeping the cash and taking the higher rate is the lower-regret move.
Final Thoughts
Run your own break-even number, then ask whether you'd truly still be in that house when it hits.