Mortgage rates are still hovering near 6.5% for a 30-year fixed loan, and lenders are pushing hard on a familiar pitch: pay more upfront, get a lower rate.
Discount points are a fee you pay at closing to buy down your interest rate.
One point costs 1% of your loan amount and typically shaves a quarter of a percentage point off the rate.
On a $400,000 mortgage, one point runs $4,000.
Here's the part lenders gloss over: that discount only pays off if you stay in the home long enough to break even.
At roughly $60 to $70 in monthly savings per point, you're looking at a five-to-six-year wait just to get your $4,000 back.
Sell or refinance before then, and you handed the lender free money.
The break-even timeline has stretched lately because the rate gap between paying points and not paying them has narrowed.
When rates were climbing, points looked generous.
Now that the market expects the Fed to ease, the calculus flips fast.
Refinancing is the silent killer of the points play.
If rates drop to 5.5% in two years, a buyer who paid thousands in points will likely refinance into a new loan anyway, wiping out the benefit of the old one.
You don't get a refund on points when you refi.
There's also a tax wrinkle people assume works in their favor.
Points on a purchase mortgage are generally deductible in the year paid, but only if you itemize, and the standard deduction is high enough that many households get nothing back.
On a refinance, the deduction has to be spread across the loan's life.
Points are pure profit booked on day one, and they lock you into a loan that's harder to leave because you've already sunk money into it.
That sunk cost can keep you from shopping around later, which is exactly the point.
If you have cash beyond your emergency fund and down payment, plan to stay put for at least seven years, and aren't betting on a big refi.
If you're short on cash, skip the points.
A smaller down payment or a fully funded emergency fund is worth more than a slightly lower rate.
Also worth knowing: seller-paid points are a different animal.
If the seller credits you at closing, that's free rate reduction, so take it.
Just make sure the credit is applied to points and not buried in a higher purchase price.
Always compare loan estimates side by side.
Lenders must disclose points in section A of the form.
If a quote looks cheaper but the points are hidden in fees, it isn't cheaper.
The pitch for points is built on a simple promise: pay now, save later.
The catch is that "later" has to actually arrive, and for a lot of buyers, life, rates, or a job offer gets in the way first.
Our take: points are a bet on your own staying power, and most people overestimate it.
Unless you're certain you'll be in that house long past the break-even date, keep the cash and take the higher rate.
Final Thoughts
Flexibility is worth more than a quarter point.