Mortgage rates are hovering near 6.3% on a 30-year fixed loan, and lenders are dangling a tempting offer in front of buyers: pay a little extra upfront, shave your rate down, and save big over time.
The choice comes down to mortgage points, also called discount points.
On a $400,000 mortgage, that's $4,000 paid at closing in exchange for a lower interest rate — often a quarter to a half percentage point lower, depending on the lender.
A $400,000 loan at 6.5% costs about $2,528 a month.
Buy one point, drop the rate to 6.25%, and the payment falls to roughly $2,463.
Divide your $4,000 by $65 and you get about 61 months — just over five years — before you break even.
Stay in the home longer than that, and the points pay off.
Sell, refinance, or move before then, and you've handed the lender thousands for nothing.
Here's where buyers get tripped up: the average American homeowner now stays in a home for about 11 to 12 years, but first-time buyers often move sooner.
If there's any chance of a job relocation, a growing family, or a refinance if rates drop, paying points becomes a bet you might lose.
Points are profitable precisely because so many borrowers underestimate how long they'll actually keep the loan.
Cash-strapped buyers face an even starker tradeoff.
That $4,000 in points could instead cover closing costs, fund an emergency savings buffer, or pay down a credit card charging 22% interest.
Paying off high-interest debt almost always beats shaving a quarter point off a mortgage.
Points on a purchase mortgage are generally deductible in the year you pay them, while points on a refinance typically must be written off over the loan's life.
That softens the upfront sting somewhat — but it's a deduction, not a rebate, so it only helps if you itemize.
Some lenders push a middle path: buy a partial point, or take a slightly higher rate in exchange for lender credits that cover your closing costs.
That's the reverse trade — lower cash today, higher payments later — and it makes sense for buyers who plan to move or refinance within a few years.
The smartest move is to ask your loan officer for a written breakeven calculation on every rate quote, then compare it against your honest timeline.
If the breakeven lands beyond how long you expect to stay, skip the points and keep your cash.
Our take: points are a tool, not a default.
In a market where rates could ease within two years, locking yourself into a long breakeven for a modest payment cut is a gamble many buyers shouldn't take.
Final Thoughts
Run the numbers, be honest about your timeline, and let the math — not the sales pitch — make the call.