What Are Mortgage Points? Should You Buy Them?

Mortgage points, also called discount points, let you prepay interest to secure a lower rate. Each point equals 1% of your loan principal.

The rate reduction per point isn't standardized. In most markets, one point buys approximately 0.25% off your rate, but this varies.

Discount points are optional and purely a rate buy-down tool. You choose whether to pay them.

On your loan estimate, origination charges appear in Section A (Origination Charges) while discount points appear in Section A under "Points" or within the interest rate box. Read both carefully.

Buy points if you plan to keep the mortgage long enough to break even and benefit from the lower rate. Calculate your break-even point: divide the cost of points by your monthly payment savings.

Most financial advisors suggest buying points only if you'll stay at least five to seven years, though this depends on the specific numbers. If you're confident you'll remain in the home or won't refinance, points can save thousands in interest.

One point always equals 1% of the loan amount. On a $200,000 mortgage, one point is $2,000.

Here's how points scale:

• $150,000 loan: 1 point = $1,500; 2 points = $3,000
• $250,000 loan: 1 point = $2,500; 2 points = $5,000
• $350,000 loan: 1 point = $3,500; 2 points = $7,000
• $500,000 loan: 1 point = $5,000; 2 points = $10,000

There's no regulatory cap on how many points you can buy, but lenders typically limit purchases to two or three points because diminishing returns set in. After a certain point, the rate reduction per dollar spent shrinks, making additional points inefficient.

Points must be paid with your own funds at closing, not rolled into the loan, to qualify for the tax deduction. Some borrowers request seller-paid points, where the seller covers the cost as a concession.

The Consumer Financial Protection Bureau (CFPB) requires lenders to disclose all costs, including points, on the loan estimate within three business days of application. Use this document to compare offers from multiple lenders, ensuring you evaluate the same loan amount, term, and down payment.

Pay points if you have excess cash, plan to stay long-term, and prefer predictable monthly savings over investment uncertainty. Skip points if you expect to move or refinance within five years, if cash is tight, or if you can earn a higher after-tax return investing that money elsewhere.

Consider alternative uses for that cash. If you carry credit card debt at 18%, paying that off yields a guaranteed 18% return versus the 4–6% effective return from points.

Market conditions also matter. In a rising-rate environment, locking a lower rate with points can protect against future increases.

How much does one mortgage point lower your interest rate?

Typically, one point reduces your rate by about 0.25%, but the exact amount varies by lender, loan type, and market conditions. Some lenders offer 0.125% to 0.375% per point.

Are mortgage points tax-deductible?

Yes, discount points are generally tax-deductible in the year you buy your primary residence if they meet IRS requirements: paid directly at closing, calculated as a percentage of the loan, and customary in your area. See IRS Publication 936 or consult a tax advisor for details.

Can you negotiate mortgage points with your lender?

Is it better to buy points or make a larger down payment?

A larger down payment reduces your loan amount, lowers monthly payments, and may eliminate private mortgage insurance (PMI) if you hit 20% equity. Compare the interest savings from points against PMI savings and the reduced principal.

What happens to mortgage points if you refinance early?

You lose the future benefit of the lower rate. If you refinance or sell before breaking even, you've paid upfront for savings you didn't capture.

Do you pay points on a refinance?