What is a mortgage point?

One point equals 1% of your loan amount, paid up front at closing. A discount point buys your interest rate down; an origination point is a lender fee for making the loan. On a $400,000 loan, one point is $4,000.

How much does one point lower my rate?

Typically about 0.25% per point, though it varies by lender and market. Two points might buy 0.5% off your rate. The lender's Loan Estimate shows exactly what each point option costs and what rate it buys.

Do I get points back if I sell or refinance early?

No. Points are a prepaid, non-refundable cost. If you sell or refinance before the break-even point, the unrecovered portion is simply lost — which is why your expected time in the home matters more than the rate itself.

Are points tax-deductible?

Discount points on a primary residence purchase are generally deductible in the year paid, subject to IRS rules. Points paid on a refinance are usually deducted gradually over the life of the loan. Confirm with a tax professional for your situation.

Mortgage Points: Are They Worth It?

A lender offers you 7.0% with no points, or 6.75% if you pay $4,000 up front. The lower rate looks better — but is it? Points are a bet that you will keep the loan long enough for the monthly saving to repay the upfront cost. Sometimes that bet wins. Often, it quietly loses. Here is how to tell which side you are on.

Discount Points vs Origination Points

Discount points buy your rate down. Each point typically cuts the rate by about 0.25%, and the saving lasts as long as you keep the loan.
Origination points are a lender fee for originating the loan. They do not lower your rate at all — they are just a cost, sometimes negotiable, sometimes not.

When comparing Loan Estimates, separate the two. Only discount points earn you anything back; origination points are pure cost.

The Break-Even Formula

Points pay off only after a certain number of months, computed the same way as a refinance break-even:

Break-even (months) = point cost ÷ monthly payment saving.

For a typical one-point buydown, that comes out near 60 months — five years. Sell or refinance before then and you lose money on the points. Stay past it and every month after is pure saving. Your honest answer to "how long will I keep this loan?" matters more than the rate quote.

The Three-Way Choice: Points vs Down Payment vs Lender Credit

That $4,000 at closing has three possible jobs, and only one of them involves points:

Buy points: Pay $4,000 up front to cut the rate. Best if you will stay well past break-even.
Bigger down payment: Put the $4,000 toward the down payment instead. The loan shrinks, the payment falls a little, and the benefit never expires or gets lost in a refinance — it is equity from day one.
Take a lender credit: Accept a slightly higher rate in exchange for the lender covering $4,000 of your closing costs. Best if cash at closing is tight or you expect to move or refinance within a few years.

There is no universally right answer — only the right answer for how long you keep the loan and how much cash you have at closing.

Worked Example: One Point on a $400,000 Loan

Take a $400,000 loan for 30 years. At 7.0% with no points, the Mortgage Calculator gives a principal-and-interest payment of about $2,661 per month. Pay one point ($4,000) to buy the rate down to 6.75%, and the payment falls to about $2,594 per month — a saving of $67 a month. Break-even is $4,000 ÷ $67 ≈ 60 months. Sell or refinance in year three and you have recovered only about $2,400 of the $4,000. Stay ten years and the point has saved you about $4,000 beyond break-even.

Now compare the other two uses of that same $4,000:

Bigger down payment: Borrow $396,000 instead of $400,000 at 7.0%. Payment: about $2,635 per month — saving $27 a month, forever, with no break-even clock and no loss if you refinance.
Lender credit: Take 7.25% with a $4,000 credit toward closing costs. Payment: about $2,729 per month — $68 a month more than the no-point loan, but $4,000 less cash needed at closing.

So the ranking depends entirely on your horizon. Staying 10+ years? Points win. Might move in 3-4 years? The lender credit or the bigger down payment wins, because the point never reaches break-even. Use the Amortization Calculator to see how the total interest differs across all three paths — the monthly payment alone does not tell the whole story.

Try These Calculators

Mortgage Calculator Amortization Calculator