Mortgage rates are still hovering near 6.5% for a 30-year fixed loan, and lenders are dangling a familiar trade-off in front of buyers: pay more upfront to shave your rate, or keep that cash and accept a higher monthly payment.
It's called buying points, and the decision can swing tens of thousands of dollars over the life of a loan.
One discount point costs 1% of your loan amount and typically lowers your interest rate by about 0.25%.
On a $400,000 mortgage, that's $4,000 upfront for a rate that might drop from 6.5% to 6.25%.
Your monthly principal and interest payment falls roughly $60.
Divide that $4,000 by $60, and you land at about 67 months — a little over five and a half years — before you break even.
That break-even window is the entire ballgame.
Stay in the home longer than that, and points usually come out ahead.
Sell, refinance, or move before then, and you've handed the lender money you'll never recoup.
The catch is that most Americans don't stay put.
Data from the National Association of Realtors shows the typical homeowner tenure has hovered around 10 years recently, but first-time buyers often move sooner.
Add in a refinance — which roughly 40% of borrowers who took mortgages in the past two years might consider if rates fall into the low 5s — and the math gets murkier.
Refinancing wipes out the benefit of your original points entirely.
There's also a tax wrinkle worth knowing.
Points paid on a purchase mortgage are generally deductible in the year you pay them, while points on a refinance usually must be deducted over the loan's life.
That can tilt the upfront math for some filers, but it doesn't change the monthly cash-flow calculation.
In a slower housing market, many buyers are negotiating seller credits to cover points rather than asking for a lower purchase price.
That lets you buy down the rate without touching your own savings — a strategy that's gained traction as inventory has loosened in parts of the Sun Belt and Midwest.
If you're weighing this decision, three questions cut through the noise.
How long will you realistically keep this loan?
Do you have the cash sitting idle, or would points drain your emergency fund?
And would a smaller down payment or paying off a 20% credit card balance beat the mortgage rate you're buying down?
A 6.5% mortgage is pricey, but a 22% credit card is worse.
Lenders won't volunteer the break-even math unless you ask.
Run the numbers with your loan officer, get the comparison in writing, and don't let a rate quote without points look artificially cheap.
The honest take: points are a bet on staying put, and most buyers overestimate how long that will be.
Final Thoughts
If you're not confident you'll clear the break-even window with room to spare, keep the cash and take the higher rate — liquidity is worth more than a small monthly discount when life is unpredictable.