Mortgage rates hovering near 6.5% have buyers hunting for any way to shrink their monthly payment, and lenders are pushing hard on a tempting offer: pay upfront "points" to knock down your rate.
It sounds like a no-brainer, but the math is far less friendly than the sales pitch suggests—and for many borrowers, those points never pay off.
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%.
The monthly savings come out to roughly $65.
Divide $4,000 by $65 and you get your break-even point: about 61 months, or just over five years.
That break-even number is where the decision lives or dies.
If you sell, refinance, or move before that point, you lose money—plain and simple.
And life has a way of disrupting five-year plans.
The average homeowner stays in a home for about a decade, but first-time buyers often move sooner, and a refinance wipes out your points entirely since you start a fresh loan.
Points are paid in cash at closing, which means that $4,000 isn't sitting in a high-yield savings account earning 4% or paying down a credit card charging 22%.
The true break-even is longer than the simple math suggests once you account for what that money could have done elsewhere.
A no-points loan keeps cash in your pocket for an emergency fund, moving costs, or furniture—real needs that a slightly lower payment doesn't address.
Instead of paying points, you can often take a higher rate in exchange for the lender covering some closing costs.
That's the better move if you're short on cash or plan to move within a few years.
The trade-off is a bigger monthly bill, but you keep your savings liquid.
Borrowers with stable jobs, no plans to move, plenty of cash reserves, and a long time horizon.
If you're putting down roots for 15 or 30 years and sitting on extra savings, buying down your rate can make sense—especially if you plan to keep the loan past that break-even date with room to spare.
Run the numbers on your specific loan, not a generic rule of thumb.
The takeaway: points are not free money, and lenders profit when borrowers don't do the math.
Ask your loan officer for a side-by-side comparison of points versus no points, including the break-even month on each.
If they can't produce it quickly, that's your answer.
Our take: most buyers chasing a lower rate would be better served keeping cash liquid and opting for the no-points route, especially in a market where refinancing could become attractive if rates fall.
Final Thoughts
Points only win when you're certain you'll stay put long enough to clear the break-even—and certainty is the one thing mortgage shoppers rarely have.