Mortgage rates have been hovering in the mid-6% range for a 30-year fixed loan, and lenders are pushing hard on a classic trade-off: pay more upfront to buy down your rate, or take the higher rate and keep your cash.
Discount points cost 1% of your loan amount per point.
On a $400,000 mortgage, one point runs you $4,000 and typically shaves about 0.25% off your rate.
Two points is $8,000 for roughly half a percentage point.
The math only works if you stay in the home long enough to break even, and most Americans don't.
Here's the part lenders gloss over at the closing table.
If you pay $8,000 to drop from 6.5% to 6.0% on that $400,000 loan, you save about $128 a month.
Divide your upfront cost by the monthly savings and you're looking at roughly 62 months, just over five years, before you've recouped a dime.
Sell, refinance, or get relocated before then and you've handed the bank free money.
The average American homeowner now stays in a home for about 10 years, according to data from the National Association of Realtors, but that figure skews long because it includes people who never move.
First-time buyers and younger households turn over far faster.
If there's any chance you'll move within five to seven years, points are usually a losing bet.
Buying points also drains cash you might need elsewhere.
That $8,000 could sit in a high-yield savings account earning 4% to 5%, cover an emergency fund, or pay down higher-interest debt like a credit card at 20%-plus.
Every dollar parked in points is a dollar not working for you anywhere else, and it's locked in your house.
There's a second trap: points are only worth it if you never refinance.
If rates fall two years from now and you refi into a lower rate, your original buydown disappears.
You paid thousands for a discount you no longer use.
Lenders know this, which is why they happily sell points to borrowers who are rate-anxious and focused on the monthly payment.
When points can make sense: you're certain you'll stay put for a decade or more, you have cash beyond your emergency fund, and you've already maxed out higher-return options.
A permanent buydown for a long-term owner in a stable market can pencil out.
Temporary buydowns, often funded by sellers in a slow market, are a different animal and worth asking about separately.
The smarter move for most buyers right now is to compare the no-points rate against the buydown rate side by side, in writing, and calculate your own break-even month.
Ask the lender for the Loan Estimate with and without points.
If the break-even lands past your realistic move date, keep your cash. **Our take:** Points aren't a scam, but they're sold like a no-brainer when they're really a bet on your own future.
Final Thoughts
In a housing market where life changes fast and rates keep shifting, holding onto your money usually beats prepaying for a discount you might never finish earning.