Mortgage rates hovering in the mid-6% range have revived an old debate at the closing table: pay discount points upfront to buy a lower rate, or keep that cash and take the higher rate as-is.
Lenders love pitching points because it pads their fee income.
But the math on whether you actually come out ahead is simpler than the sales pitch suggests—and it hinges on one number most buyers never calculate.
A discount point costs 1% of your loan amount and typically shaves 0.25% off your interest rate.
On a $400,000 mortgage, one point runs $4,000 and might drop a 6.5% rate to 6.25%.
That lowers the monthly payment by roughly $60.
Divide your $4,000 cost by $60 in monthly savings, and you land at about 67 months—five and a half years—before you break even.
That break-even window is the whole ballgame.
Sell, refinance, or pay off the loan before month 67, and you handed the lender free money.
Stay put for a decade, and the savings compound in your favor.
The catch: the average American homeowner now keeps a mortgage for less than eight years, and refinance activity spikes whenever rates dip.
Buying points is essentially a bet that you won't move and won't refi.
Points paid on a purchase mortgage are usually tax-deductible in the year you pay them, while points on a refinance must be deducted over the loan's life.
That softens the upfront sting slightly, but it doesn't change the break-even timeline.
And points don't reduce your principal balance by a dime—that $4,000 buys a rate, not equity.
For buyers stretched thin on down payment and closing costs, keeping cash is often the smarter play.
A lower monthly payment feels good, but liquidity covers a furnace replacement, a job gap, or an emergency without a credit card.
If you're planning to stay 10-plus years and have reserves to spare, points can pencil out.
If you're unsure, ask your lender for a side-by-side Loan Estimate showing both scenarios—and check the "How Can I Save Money?" section, which compares total costs over five years.
One more trap: some lenders quietly raise the no-points rate to make the points deal look better.
Always compare at least three lenders on the same day, since rate quotes move constantly.
Ask specifically for the par rate—the rate with zero points and zero lender credits—as your baseline. **Our take:** Points aren't a scam, but they're oversold to buyers who won't stick around long enough to win.
Final Thoughts
Run the break-even math with your actual timeline, not the lender's optimism, and only pay points with money you won't miss.