Mortgage rates are still hovering near 6.5% for a 30-year fixed loan, and lenders are dangling a familiar choice in front of buyers: pay extra upfront to knock your rate down, or keep that cash in your pocket.
It's called buying points, and the decision can swing your monthly payment by $100 or more.
The catch is that it only pays off if you stick around long enough.
One discount point costs 1% of your loan amount and typically shaves about 0.25% off your interest rate.
On a $400,000 mortgage, that's $4,000 upfront to drop from, say, 6.5% to 6.25%.
Divide your $4,000 by that savings and you get a break-even point of about 64 months — a little over five years.
That break-even number is the whole ballgame.
Stay in the house longer than that and you come out ahead.
Sell, refinance, or move before then and you handed the lender free money.
The average American homeowner now stays put for roughly 10 to 12 years, but first-time buyers and job movers often sell much sooner than they expect.
Points paid on a purchase mortgage are generally deductible in the year you pay them, while points on a refinance usually have to be spread across the loan's life.
That can tilt the math, but it doesn't rescue a bad deal if you're moving in three years.
Lenders love to upsell points because it pads their profit and locks you into a bigger closing cost.
Ask for a loan estimate showing both scenarios side by side: one with points, one without.
Compare the total cost over five, seven, and ten years, not just the monthly payment.
The lower payment always looks prettier — that doesn't make it cheaper.
If you're short on cash for a down payment, points are usually the wrong move.
That money might be better spent avoiding private mortgage insurance or keeping an emergency fund intact.
If you're sitting on extra savings and plan to stay a decade, buying the rate down can be a quiet win.
In a slow market, some sellers will cover points to sweeten a deal.
That's free rate reduction for you, and it's worth asking for before you agree to a price.
Run your own break-even before you sign anything.
A $4,000 upfront cost sounds small next to a $400,000 loan, but it's real money that vanishes the moment you sell too early.
Our take: points aren't a scam, but they're oversold to buyers who won't stay long enough to benefit.
Final Thoughts
Know your timeline, do the division, and let the math — not the lender's pitch — make the call.