Mortgage rates are still hovering near two-decade highs, and lenders are dangling a familiar choice in front of every buyer: pay more upfront for a lower rate, or keep cash in your pocket and accept a higher one.
It's called buying points, and the wrong pick can cost you thousands over the life of a loan.
One discount point typically costs 1% of your loan amount and shaves roughly 0.25% off your interest rate.
On a $400,000 mortgage, that's $4,000 upfront to drop your rate from, say, 6.75% to 6.5%.
Sounds small, but it adds up over 30 years.
Divide your upfront cost by your monthly savings, and you get the number of months it takes to recoup the money.
In that example, $4,000 divided by $65 is roughly 61 months, or about five years.
Sell, refinance, or move before then, and you've handed the lender free money.
That timeline matters more than ever right now.
Millions of homeowners refinanced during the pandemic's rock-bottom rates, and plenty of buyers today plan to refinance the moment rates dip.
If that's you, paying points is usually a losing bet, since a refi wipes out the lower rate you paid for.
Paying points can still make sense in a few scenarios.
If you're putting down roots for the long haul, have cash beyond your emergency fund, and plan to stay put for a decade or more, the math can work in your favor.
Some buyers also get seller credits at closing, which lets them buy down the rate without spending their own savings.
There's also the tax angle, though it's narrower than people assume.
Points paid on a purchase mortgage are generally deductible in the year you pay them, while points on a refinance typically get deducted over the loan's life.
As always, check with a tax professional, because rules shift and everyone's situation is different.
The alternative is simpler: take the no-points loan, keep your cash, and invest it or park it in a high-yield savings account.
With savings rates still competitive, that money can earn a return while staying available for repairs, job changes, or the unexpected.
Liquidity has real value, especially in the first few years of owning a home.
One more wrinkle: points aren't your only closing cost.
Origination fees, appraisals, title insurance, and escrow deposits stack up fast, and draining your reserves to buy down a rate leaves you exposed.
Lenders love points because they get paid today; you need to decide whether tomorrow's savings justify today's hit.
Ask your lender for a loan estimate showing both options side by side, then run the break-even math yourself.
Don't let a sales pitch make the decision for you.
The right answer depends on how long you'll stay, how much cash you'll have left, and whether you'd rather bet on a future refinance.
Our take: for most buyers in this market, keeping the cash and skipping points is the safer play.
Final Thoughts
Rates are volatile, life changes fast, and flexibility beats a slightly smaller payment you might never live long enough to earn back.