Walk into any mortgage closing and you'll face a deceptively simple question: pay extra upfront for a lower rate, or take the higher rate and keep your cash?
The answer isn't about which option sounds smarter.
It's about how long you plan to stay put.
Mortgage points, sometimes called discount points, are upfront fees that buy down your interest rate.
One point typically costs 1% of your loan amount and shaves somewhere between 0.25% and 0.5% off the rate, though the exact discount shifts with market conditions.
On a $400,000 loan, that's $4,000 out of pocket at closing.
Say you're choosing between a 7% rate with no points and a 6.5% rate with one point.
The lower rate saves you roughly $130 a month on that $400,000 loan.
Divide your $4,000 cost by $130, and you land at about 31 months.
Stay longer than roughly two and a half years, and the points pay off.
Sell or refinance before then, and you've handed the lender free money.
This is why points tend to favor buyers who plan to stay in the home for the long haul.
If your job might move you in two years, or you're buying a starter home you'll outgrow, paying points is often a losing bet.
Keep the cash instead and put it toward an emergency fund or a lower down payment.
There's a second trap: points aren't the only thing inflating your closing costs.
Origination fees, appraisal charges, title insurance, and prepaid taxes all pile on.
Lenders sometimes push points because they boost the loan's profitability, not because it's the right call for you.
Always ask for a Loan Estimate that shows both scenarios side by side, and compare the total cost over your realistic time horizon, not just the headline rate.
One more wrinkle worth knowing: seller-paid points.
In a slow housing market, some sellers will cover discount points to sweeten a deal.
That's essentially free rate relief, and it's worth asking for during negotiations.
It costs the seller less than a straight price cut and can save you tens of thousands over the life of the loan.
Some lenders offer lender credits, where you accept a slightly higher rate in exchange for help covering closing costs.
That's the no-points strategy taken a step further, and it can make sense if you're cash-strapped or planning a short stay.
There's no universal right answer, despite what any lender implies.
Points are a bet on time, and only you know how long you'll hold the mortgage.
Run the break-even math, factor in your refinancing odds, and don't let a sales pitch rush a decision that follows you for decades.
Our take: for most first-time buyers who might move within five years, keeping the cash and skipping points is the safer play.
Final Thoughts
But if you've found your forever home and the break-even lands under three years, buying down the rate is one of the few genuine wins in an expensive housing market.