Mortgage rates are hovering in the low 6% range, and lenders are flooding buyers with a tempting offer: pay a little extra now, and shave your rate for the life of the loan.
It's called buying points, and it sounds like free money.
On a $400,000 mortgage, one point runs $4,000 and typically knocks about 0.25% off your rate.
Two points? $8,000 for roughly half a percent.
The catch is buried in a single number most buyers never calculate: the break-even point.
Say you're offered 6.5% with no points or 6.0% with two points, costing $8,000.
The lower rate saves you about $130 a month.
Divide $8,000 by $130 and you land at roughly 61 months — just over five years — before you've recouped a dime.
Sell, refinance, or get transferred before then, and you handed the lender thousands for nothing.
The average American homeowner now stays in a home for about 10 to 12 years, according to data from ATTOM and Zillow, but first-time buyers move sooner.
If you're planning a starter home you'll outgrow in four years, paying points is close to lighting money on fire.
Points are paid upfront in cash, on top of your down payment and closing costs.
That's money that could otherwise bulk up your emergency fund, pay down a credit card charging 22%, or cover the inevitable first-year repairs — the water heater, the fence, the mystery leak.
A guaranteed 6% return on your mortgage rate isn't bad, but wiping out a 22% credit card balance is a better one.
If you're putting down roots for the long haul, have cash to spare after closing, and plan to keep the loan well past break-even, buying the rate down is a reasonable move.
Some buyers also negotiate seller credits to cover points, which flips the math entirely — someone else's money, your lower rate.
Ask your lender for a loan estimate showing both scenarios side by side, then run the break-even yourself.
Don't let a sales pitch about "lower payments" skip the part where you do the division.
Final Thoughts
The bottom line: points are a bet that you'll stay put long enough to win.