Mortgage rates hovering in the mid-6% range have turned a once-boring question into a genuine budget-shaper: should you pay discount points at closing, or take the higher rate and keep the cash?
One discount point costs 1% of your loan amount and typically shaves 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%.
Lenders will happily sell you two or three points if you want a bigger cut.
The math only works if you stay put long enough.
On that $400,000 loan, one point saves roughly $58 a month.
Divide your $4,000 cost by $58 and you get about 69 months — nearly six years — before you break even.
Sell, refinance, or move before then, and you've handed the lender free money.
That break-even window is why points favor a specific type of buyer: someone with cash to spare who plans to hold the loan for the long haul.
If you're scraping together your down payment, draining savings for points can backfire fast.
A surprise roof repair or job loss hurts more when your emergency fund is sitting in the lender's pocket.
There's also a tax wrinkle worth knowing.
Points paid on a purchase mortgage are often deductible in the year you pay them, while points on a refinance usually have to be spread across the loan's life.
Ask a tax professional about your situation — the rules have fine print.
No-points loans aren't automatically the smarter play, either.
You'll pay a higher rate every month for as long as you keep the loan, and that adds up.
The trade-off is flexibility: lower closing costs, more cash on hand, and a cheaper exit if rates fall and you refinance.
One trap to watch for is the "no-cost" mortgage, which really means the lender rolls fees into a higher rate.
It's not free — you're just paying through the interest instead of at the table.
Compare the loan estimate line by line, not the marketing label.
Many buyers split the difference with a single point, or ask the seller to cover points as part of negotiations in a soft market.
In a slower housing market, sellers are more willing to make that concession than they were two years ago.
Run your own numbers before anyone runs them for you.
Use an online break-even calculator, plug in how long you honestly expect to keep the loan, and compare at least three lenders.
The gap between the best and worst offer on the same loan can easily reach five figures over time. **The bottom line:** Points are a bet that you'll stay put, and that bet only pays off with time.
Final Thoughts
If your life or the rate market might shift within a few years, keeping the cash and taking the higher rate is often the quieter win.