Mortgage Points 2026: When Buying Down Your Rate Pays

What a point actually buys you

One discount point costs 1% of your loan amount, paid upfront at closing. On a $400,000 loan, one point is $4,000. In exchange, the lender drops your interest rate — typically by about 0.25 percentage points per point, though this varies by lender and market conditions. Two points ($8,000) might take you from 7.00% to 6.50%.

That "typically 0.25%" matters more than people think. Lenders don't all offer the same trade. One lender's two points might buy you 0.375% off the rate while another's buys 0.5%. Always compare the rate reduction per dollar, not just the number of points. A lender offering 0.125% per point is selling you expensive points; 0.25%–0.375% per point is the normal range.

Points are distinct from origination fees, by the way. Origination fees (often 0.5–1% of the loan) are the lender's charge for making the loan — they don't lower your rate. Discount points do. On a closing disclosure, look for them as separate line items. Lenders sometimes blur the two in conversation, and it always blurs in their favor.

There's also a tax angle: points you pay on a purchase mortgage are generally deductible as mortgage interest in the year you pay them (assuming you itemize and it's your primary residence). Points paid on a refinance must be deducted gradually over the loan term. That deduction softens the upfront cost a bit, but don't let the tax tail wag the dog — you only get back your marginal rate on the amount.

The $400,000 breakeven, step by step

Let's do the actual math. Loan: $400,000, 30-year fixed. Option A: 7.00% with zero points. Option B: 6.75% with one point ($4,000 upfront).

Option A's monthly payment (principal and interest): about $2,661. Option B's: about $2,594. Monthly savings from buying the point: roughly $67.

Breakeven = upfront cost ÷ monthly savings = $4,000 ÷ $67 ≈ 60 months. Five years.

That means: if you sell or refinance before month 60, the point lost you money. If you keep the loan past month 60, every additional month is $67 in your pocket. Over the full 30 years, that one point saves you about $19,000 in interest for a $4,000 cost — a genuinely good deal, if the "if" holds.

Two points ($8,000 for roughly 6.50%, payment ~$2,528, savings ~$133/month) breaks even in about the same 60 months, since the pricing is roughly linear. The pattern holds: each point typically pays for itself in 4–7 years depending on the exact rate trade.

Now change one assumption. Rates drop to 5.5% in year three and you refinance. Your $4,000 point bought you 36 months of $67 savings — $2,412 — and the remaining $1,588 is gone forever. This is the central risk of points, and in a rate environment where many buyers expect future cuts, it's the risk that matters most.

When points win: the clear yes cases

Points are a good bet when three things line up. You're buying a home you plan to keep for a long time — 10+ years, not 3. You have the cash to pay points without draining your emergency fund or shorting your down payment. And you believe rates are unlikely to fall enough to justify a refinance during your breakeven window.

The strongest case is the forever-home buyer with a fixed-rate mortgage who itemizes deductions. You're going to pay that loan for decades; the math is overwhelmingly in your favor. Over 30 years, two points on our $400,000 example saves roughly $38,000 in interest for $8,000 upfront. That's not a close call.

There's a subtler good case too: the buyer stretching to qualify. A lower rate means a lower monthly payment, which can push your debt-to-income ratio under the lender's limit. I've seen buyers use one point not to save money but to get approved at all. That's a legitimate use — just know you're paying for access, not savings.

When points burn money: the clear no cases

Points are a bad bet when you're likely to move or refinance before breakeven. First-time buyers in starter homes, military families, anyone buying in a transitional neighborhood — if there's a real chance you're out in under five years, keep your $4,000.

They're also wrong when cash is tight. Points paid at closing compete with your down payment and emergency fund. A bigger down payment that avoids PMI, or a six-month emergency reserve, beats a quarter-point rate reduction almost every time for a cash-constrained buyer. Liquidity has a value the breakeven formula doesn't capture: options.

And they're wrong on adjustable-rate mortgages in most cases. If your rate resets in 5 or 7 years anyway, the savings window is capped by the adjustment date, and the breakeven math rarely works. Some lenders price points attractively on ARMs precisely because they know most borrowers won't hold long enough to benefit.

One more no: when you can get a lender credit instead. Sometimes a lender offers you money (a credit toward closing costs) in exchange for taking a higher rate. If you're cash-light at closing, negative points can be the smarter mirror image of this whole trade.

Points vs. bigger down payment: the overlooked comparison

Here's the comparison almost nobody runs. You have $8,000 extra at closing. Option 1: buy two points, dropping your rate from 7.00% to 6.50% on a $400,000 loan. Option 2: put the $8,000 toward the down payment, borrowing $392,000 at 7.00%.

Option 2's payment: about $2,608 — $53 less than the no-points baseline, with no breakeven clock ticking. You also owe less principal from day one, which helps if you sell early, and you build equity faster. Option 1's payment: $2,528 — $133 less, but only pays off if you stay past year five.

The down payment route has no expiration date on its benefit. The points route does. If there's any chance you move early, the extra down payment is the safer place for the money. Points only beat it when you're confident about staying put — and even then, run both scenarios before you decide.

There's one exception: if that $8,000 toward the down payment crosses the 20% threshold and eliminates PMI, it's not even close — killing PMI wins by a mile. PMI on a $400,000 loan can run $150–$300 a month, dwarfing any points savings.

How to negotiate the points trade itself

The rate sheet is not the final offer. Lenders have margin in the points-to-rate trade, especially when they're competing for your loan. Get three Loan Estimates on the same day (rates move daily, so same-day quotes are the only honest comparison) and ask each lender to quote you three scenarios: zero points, one point, two points.

Then compute the cost per eighth of a point. If Lender A charges $4,000 to go from 7.00% to 6.75% and Lender B charges $3,200 for the same move, Lender B's points are 20% cheaper — and you can use that quote to push Lender A. Lenders will often sharpen the trade rather than lose the loan.

Watch for the points conversation happening without your consent. Some lenders bake a point or two into their advertised rate to make the number look lower, then present it as standard. Always ask: "Is this quote with zero points?" If the answer involves hedging, get the zero-point quote in writing.

And check the calendar. Points paid late in the year on a purchase get deducted on that year's taxes; points paid in January wait a full year for the benefit. It's a minor factor, but if you're closing in December anyway, it's free money.

Run your own numbers with the Dual-Currency Mortgage & Amortization Calculator — plug in your loan amount, compare the with-points and without-points payments, and divide the upfront cost by the monthly difference. If the breakeven month is past your realistic moving date, walk away from the points.