Short answer: one mortgage point costs 1% of your loan amount and typically lowers your rate by about 0.25%. On a $400,000 loan, 1 point costs $4,000, drops a 7.00% rate to 6.75%, and saves $66.82 a month — breaking even after about 5 years. Buy points if you’ll stay well past break-even; skip them if you might move or refinance within a few years, because every dollar of savings before break-even is just you getting your own money back.
What a mortgage point actually is
Mortgage “points” come in two flavors, and mixing them up is one of the costliest mistakes a borrower can make:
- Discount points are prepaid interest: you pay cash at closing in exchange for a permanently lower rate. These appear as a line item on your Loan Estimate. These are what this guide is about.
- Origination points are a lender fee for processing the loan — they do not lower your rate at all.
If your paperwork just says “points,” ask your loan officer which kind you’re looking at before signing anything. With discount points, the industry rule of thumb is 1 point = 0.25% off your rate, though the exact trade varies by lender, loan program, and the day’s pricing (anywhere from 0.125% to 0.375%). Fractional points are common — you can often buy in eighths of a point.
The worked example: 1 point on a $400,000 loan
All payment figures below were computed with the standard 30-year amortization formula:
| No points | 1 point | |
|---|---|---|
| Rate | 7.00% | 6.75% |
| Upfront point cost | $0 | $4,000 |
| Monthly principal & interest | $2,661.21 | $2,594.39 |
| Monthly savings | — | $66.82 |
| Break-even | — | $4,000 ÷ $66.82 ≈ 60 months (5 years) |
And here’s what you keep depending on how long you hold the loan:
| Hold length | Cumulative savings minus $4,000 cost |
|---|---|
| 3 years | −$1,595 (you lost money) |
| 5 years | +$9 (just broken even) |
| 10 years | +$4,018 |
| Full 30 years | +$20,054 (interest savings minus the point) |
Run your own numbers anytime with the Rate Buydown Calculator — don’t rely on the loan officer’s pitch alone.
The flip side: lender credits (negative points)
Points and lender credits are mirror images. A lender credit is the lender paying you at closing in exchange for a higher rate. The same break-even math applies in reverse: divide the credit by the extra monthly cost to see how long the trade stays in your favor. Credits suit cash-strapped closings or likely refinances; they punish you if you keep the higher rate for years.
Four situations where buying points wins
- A “forever home.” If you’ll hold the loan 7–10+ years — well past the ~5-year break-even — points are one of the cheaper ways to cut total interest. On our example, the lifetime interest bill falls by more than $20,000.
- You might not refinance. Points lose their value the moment you refinance or sell. They’re best when rates are high and likely to stay there — buying points in a 7% environment only to refinance at 5.5% two years later wastes the money entirely.
- Cash isn’t tight. Never spend your emergency reserves on points. Extra principal payments — see How to Pay Off Your Mortgage Early — have no break-even clock ticking against you.
- The tax deduction helps you. Points are prepaid mortgage interest, and the IRS lets you deduct them — but only if you itemize. Purchase points can generally be deducted in full in the year paid if you meet the IRS tests; refinance points must be spread over the life of the loan. With today’s high standard deduction, many borrowers get zero tax benefit from points. Run your own taxes before counting it.
Three situations where points are a mistake
- You’ll move or refinance soon. The average homeowner sells or refinances within about 3.6 years. If your break-even is 5 years and you move in 4, the point cost you money, not the other way around.
- The buydown yield is weak. If your lender only offers 0.125% per point instead of 0.25%, the break-even stretches toward 10 years — a deal very few borrowers will ever benefit from. Always divide: point cost ÷ monthly savings. That’s the only number that matters.
- The cash could work harder elsewhere. Every point dollar is a dollar not in your down payment, not in reserves, and not earning interest. A bigger down payment also shrinks your loan amount — which is what points are a percentage of. Compare both routes on the Loan Amortization Calculator.
How to compare quotes fairly
A low advertised rate with high points can be worse than a higher rate with zero points. Get at least three Loan Estimates, line up Section A fees against each quoted rate, and run the break-even on every combination — shop the trade, not just the rate. The CFPB’s Loan Estimate form exists precisely to make this comparison possible. For refinance-specific point math, see Refinance Break-Even Point: When Refinancing Pays Off.
Frequently asked questions
How much does one mortgage point cost?
One point costs exactly 1% of your loan amount — $4,000 on a $400,000 loan, $3,000 on a $300,000 loan. It is calculated on the loan amount, not the purchase price. Each point typically lowers your interest rate by about 0.25%, though the exact reduction depends on the lender, the loan program, and market conditions on the day you lock.
Are mortgage points tax deductible?
Sometimes — and only if you itemize. The IRS treats discount points as prepaid mortgage interest. Points on a home purchase can generally be deducted in full in the year paid if you meet the IRS tests; points on a refinance must be spread over the life of the loan. With the standard deduction as high as it is in 2026, many borrowers get no tax benefit from points at all.
What’s the difference between discount points and origination points?
Discount points are prepaid interest that permanently lowers your mortgage rate. Origination points are a lender fee for processing and underwriting the loan — they do not reduce your rate. On the Loan Estimate, discount points appear as their own line item noting they buy down the rate; origination charges appear as lender fees. Always ask your loan officer to confirm which type you’re being quoted.
Should I buy points or make a bigger down payment?
It depends on your break-even horizon. Points only pay off if you keep the loan past break-even — typically around 5 years for a 0.25%-per-point buydown. A bigger down payment reduces your loan balance immediately, with no break-even clock, and can eliminate private mortgage insurance if it gets you to 20% equity. If you’ll move or refinance within a few years, the bigger down payment almost always wins.