Mortgage lenders love to dangle the "buy down your rate" pitch at the closing table.
Fork over a few thousand dollars upfront, they say, and you'll shave a chunk off your interest rate for the life of the loan.
One mortgage point costs 1% of your loan amount and typically knocks your interest rate down by about 0.25%.
On a $400,000 loan, that's $4,000 upfront to save roughly $60 a month.
Divide $4,000 by $60 and you get 67 months — about five and a half years — before you break even.
That's your breakeven point, and it's the number that decides whether points are worth it.
The catch is that most homeowners don't stay put that long.
The average American sells or refinances within five to seven years, and plenty move much sooner.
If you sell at year three, you handed the bank thousands of dollars and got nothing back.
The lower rate doesn't transfer to your next house.
There's a second trap that rarely gets mentioned.
Paying points lowers your monthly payment, which sounds great, but it also means you've tied up cash that could've gone toward your emergency fund, a smaller down payment, or paying off higher-interest debt.
A credit card charging 24% will eat you alive faster than a mortgage rate cut will save you.
Points make the most sense in a narrow set of cases.
You're planning to stay in the home for at least seven to ten years.
You have cash sitting around after closing that you won't need.
And you've already shopped at least three lenders, because rate quotes vary wildly and the "discount" a lender offers may just be bringing an inflated rate back down to market.
Buyers who plan to move, refinance if rates drop, or who are stretching to afford the down payment should almost always skip points.
Take the higher rate, keep your cash liquid, and revisit a refinance later if rates fall.
You can always pay points on the next loan — but you can't get back money you handed over at closing.
Before you sign anything, ask your lender for a side-by-side comparison showing the monthly payment and total cost over five, seven, and ten years with and without points.
If they can't produce it quickly, that's a red flag.
A good loan officer will run the math with you.
A pushy one will just tell you the lower rate "pays for itself." Our take: points are a bet that you'll stay in the house long enough to win, and the odds favor the house — literally.
Unless you're certain you're staying put for the long haul, keep your cash and take the plain vanilla rate.
Final Thoughts
Your future self may thank you when life throws a curveball.