Mortgage lenders love to hand you a menu.
Pay a little extra upfront, and you get a lower rate.
That upfront fee is called "buying points," and each point typically costs 1% of your loan amount.
On a $400,000 mortgage, one point runs you $4,000.
In exchange, the lender shaves your interest rate, usually by around 0.25%.
The catch is that you have to keep that loan long enough to earn the money back.
Say you're choosing between a 6.5% rate with no points and a 6.25% rate with one point on that $400,000 loan.
The lower rate saves you roughly $60 a month.
Divide your $4,000 by $60, and you land at about 67 months — a little over five and a half years — before you break even.
Sell, refinance, or pay the loan off before that, and you handed the lender free money.
Lenders know most buyers don't run this math.
A 2023 Consumer Financial Protection Bureau report found that a large share of borrowers who paid discount points would have been better off skipping them, largely because they moved or refinanced before the savings caught up.
The paperwork didn't lie — it just buried the fine print.
Points make sense if you plan to stay put for the long haul, have cash sitting idle, and expect rates to stay flat or climb.
They make less sense if you're buying a starter home, expect a raise or a move within a few years, or need every dollar for closing costs and an emergency fund.
Paying points can even hurt you if you drain your savings to do it — a broken furnace in month three costs more than a slightly higher rate ever will.
The honest move: ask your lender for a Loan Estimate showing both scenarios side by side.
Then ask yourself one question — will I still be in this house when the break-even month arrives?
If the answer is fuzzy, take the no-points option and keep your cash.
You can always refinance later if rates drop, but you can't un-pay a fee.
There's also a middle path most lenders won't lead with.
You can ask for a lender credit — the reverse of points — where the bank covers part of your closing costs in exchange for a slightly higher rate.
If you're cash-tight, that trade can get you into the home without emptying your accounts.
None of this is a prediction about where rates go.
It's arithmetic you can do on a napkin before you sign anything. **The takeaway:** Points aren't a scam, but they're sold like a no-brainer when they're really a bet on how long you'll stay.
Final Thoughts
Run your own break-even number, trust it over any sales pitch, and remember that the cheapest loan is the one you can still afford after closing day.