Mortgage Points: Are They Worth It? The Break-Even Math

What Mortgage Points Are

One point = 1% of your loan amount, paid upfront at closing. In exchange, your lender lowers your interest rate — typically by 0.25% per point, though this varies by lender and market conditions.

On a $400,000 loan: 1 point = $4,000 upfront. Rate reduction: ~0.25%. Monthly savings: ~$58.

The Break-Even Calculation

Cost of points ÷ Monthly savings = Break-even in months

$4,000 ÷ $58 = 69 months (5.75 years)

If you sell or refinance before 5.75 years: points were a bad deal. If you stay longer: points save money.

When Points Are Worth It

• You plan to stay in the home for 7+ years
• You have cash available after the down payment and reserves
• The rate reduction meaningfully improves your DTI qualification
• Rates are high and you expect to hold the loan long-term

When Points Are a Bad Deal

• You plan to sell or refinance within 5 years
• You're using savings to buy points instead of keeping reserves
• You could invest that cash at a higher return than the rate reduction
• Rates are high and are likely to fall (refinancing erases the point benefit)

Negative Points (Lender Credits)

The reverse also exists: lenders can pay your closing costs in exchange for a higher rate. This makes sense for buyers with limited cash who plan short-term ownership. The higher rate costs less than the closing costs you avoided — if you sell or refi quickly enough.

Not financial advice. Educational content based on 23 years of mortgage industry experience.