Mortgage rates are hovering in the mid-6% range, and lenders are pushing a tempting pitch: pay more upfront, get a lower rate for the life of the loan.
It's called buying points, and it can save real money.
It can also quietly cost you thousands if you sell or refinance too soon.
One discount point costs 1% of your loan amount and typically shaves about 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 means you'd need about 66 months, or five and a half years, just to get your $4,000 back.
Stay in the home longer and you come out ahead.
Sell in year three, and you handed the lender free money.
The break-even calculation is simple, but few buyers actually run it.
Take the cost of the points, divide by the monthly savings, and you get the number of months to recoup.
If you plan to move, refinance, or pay off the loan before that date, points are a losing bet.
Points on a purchase mortgage are generally deductible in the year you pay them, while points on a refinance usually have to be deducted over the loan's life.
That changes the math, so ask a tax professional about your specific situation rather than assuming the deduction saves you.
They get cash today and a customer locked into a lower rate, which makes refinancing less attractive later.
Some loan officers earn more on points than on the base loan, so the enthusiasm you hear isn't purely altruistic.
That doesn't make points a scam, but it does mean the recommendation deserves scrutiny.
The smarter move for many buyers is a no-points loan with a slightly higher rate and no upfront cost.
That keeps cash free for an emergency fund, closing costs, or a smaller down payment.
Cash is flexibility, and flexibility has value that doesn't show up on a rate sheet.
If you're deciding, get quotes both ways from at least three lenders.
Ask for the loan estimate with and without points, side by side, and compare the total cost over the exact number of years you expect to stay.
If you're not sure how long that is, lean toward keeping your cash.
A short-term buy is the clearest case against points.
A forever home with stable income and no plans to refinance is the clearest case for them.
Everyone else sits somewhere in the middle, guessing.
Our take: points aren't a scam or a secret hack, they're a bet on your own timeline.
Most buyers overestimate how long they'll keep a mortgage, and the lender collects either way.
Final Thoughts
Run the break-even number before anyone runs it for you.