Mortgage rates are hovering near 6.5% for a 30-year fixed loan, and lenders are dangling a tempting offer: pay extra upfront to shave your rate.
It's called buying points, and whether it pays off depends on a math problem most homebuyers never actually run.
One discount point typically costs 1% of your loan amount and lowers your interest rate by about 0.25%.
On a $400,000 mortgage, that's $4,000 upfront to drop from, say, 6.5% to 6.25%.
Sounds small, but it compounds over decades.
The break-even point is the number that matters.
Divide your upfront cost by your monthly savings: $4,000 divided by $60 equals about 67 months, or roughly five and a half years.
Stay in the home longer than that, and you come out ahead.
Sell or refinance before then, and you've handed the lender free money.
The average American homeowner now stays in their house about 12 years, according to recent data.
But first-time buyers often move sooner, and roughly a third of mortgages get refinanced within five years when rates drop.
If you expect to refinance the moment rates fall below 6%, paying points today is likely a losing trade.
Points on a purchase mortgage are generally 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 for buyers, but it doesn't change the break-even math.
Talk to a tax professional about your situation.
The alternative is a no-points loan, sometimes called a par rate.
You pay zero upfront and accept a slightly higher rate.
Your closing costs drop by thousands, cash stays in your pocket for moving expenses, furniture, or an emergency fund.
In a market where home prices remain stubbornly high and inventory is tight, that liquidity can matter more than a marginally lower payment.
If you have cash to spare, plan to stay put for at least seven years, and want the lowest possible payment, points can make sense.
If your down payment already stretches you thin, or you might move or refinance soon, skip them.
Ask your lender for a side-by-side loan estimate showing both scenarios with identical terms.
The Loan Estimate form makes this comparison easy because every lender uses the same layout.
Lenders compete hard for borrowers right now, and asking for a discount on points or a waiver of origination fees often works, especially with a strong credit score.
Get quotes from at least three lenders and let them fight over your business.
The bottom line: buying points is a bet on how long you'll keep the loan, nothing more.
Run your own break-even number before signing anything.
Final Thoughts
If a lender can't clearly explain when you'd recoup the cost, that's your answer—walk away.