Mortgage rates hovering near 6.5% have buyers hunting for any lever they can pull, and lenders keep dangling one that sounds like free money: pay a little extra upfront, and your rate drops.
It's called buying points, and whether it pays off comes down to one number most shoppers never calculate.
One discount point costs 1% of your loan amount and typically shaves your interest rate by about 0.25%.
On a $400,000 mortgage, that's $4,000 upfront to trim roughly a quarter-point off your rate.
Lenders will happily sell you two or three points if you ask.
The break-even point is where this gets interesting.
On a $400,000 loan at 6.5%, the principal and interest payment runs about $2,528 a month.
Buy one point, drop the rate to 6.25%, and the payment falls to roughly $2,463 — a savings of about $65 a month.
Divide your $4,000 cost by that $65, and you break even in about 61 months, just over five years.
Stay in the house longer than five years and buying the point puts you ahead.
Sell, refinance, or move before then and you handed the lender money you'll never see again.
Points are paid at closing and never refunded.
The calculus shifts if you're shopping in a market where rates might fall.
If there's a real chance you'll refinance in two or three years, paying points now is close to lighting that cash on fire — you'd pay the cost twice, once now and again at the refi.
In a high-rate environment like today's, though, more buyers are betting rates stay elevated and locking in the discount.
There's a second option worth knowing: lender credits, which work in reverse.
Instead of paying upfront for a lower rate, you accept a slightly higher rate and the lender covers some of your closing costs.
That's the move for buyers who are cash-strapped or plan to move within a few years.
Ask your loan officer for a side-by-side Loan Estimate showing both scenarios — with and without points — including the total cost over five years.
That single document turns a vague sales pitch into a simple comparison, and it's required by law within three business days of your application.
One more wrinkle: points on a primary residence are generally tax-deductible in the year you pay them, while points on a rental or second home usually have to be deducted over the life of the loan.
That difference can swing the math for investors.
Our take: buying points is a bet on staying put, and it only makes sense if you're confident you'll be in that house past the break-even date.
If your life or the rate market is unpredictable, take the lender credit and keep your cash — flexibility is worth more than a slightly smaller payment.
Final Thoughts
Run the break-even math before you sign anything, because the lender won't run it for you.