By the HomeAffordLab team · Last updated October 27, 2026
Mortgage discount points let you pay more at closing in exchange for a lower interest rate. One point costs 1% of the loan amount and typically lowers the rate by about 0.25 percentage points, though the exact discount varies by lender and by day.
On a $320,000 loan at 7.32%, one point would cost $3,200 and, at a typical discount, cut the payment by about $54 a month. You’d need to keep the loan for about five years to break even. This guide shows how to calculate whether points are worth it for you.
Key takeaways
- One discount point = 1% of the loan amount, paid at closing.
- Each point usually lowers the rate by about 0.25 points, but lenders price points differently.
- Break-even month = cost of points ÷ monthly savings.
- Points make sense if you’ll keep the loan well past the break-even point. If you might sell or refinance soon, they usually don’t.
- Origination points are a fee for making the loan and don’t lower your rate.
In this guide: How points work · Example with real numbers · Break-even formula · When points are worth it · Alternatives · Taxes · FAQ
Mortgage Payment Calculator
Your full monthly payment: principal, interest, property tax, homeowners insurance, PMI or FHA mortgage insurance, and HOA dues.
Loan balance and what you pay over time
Each year’s principal and interest, and the balance left at year end.
Year-by-year amortization table
| Year | Principal | Interest | Balance |
|---|
How mortgage points work
When a lender quotes you a rate, it’s often one option on a menu. You can usually choose:
- A higher rate with lender credits, where the lender pays part of your closing costs.
- The “par” rate, with no points and no credits.
- A lower rate with discount points, where you pay extra upfront.
Points are listed on your Loan Estimate as “points” or “discount points” in the origination charges section. You can also buy a fraction of a point, such as 0.5 or 0.375 points, so ask for several options.
Don’t confuse discount points with origination points. Origination points are a fee for processing the loan and don’t lower the rate. Both appear in the same section of the Loan Estimate, so read the labels carefully.
Example: are points worth it on a $320,000 loan?
The table assumes a 30-year fixed loan of $320,000, a no-points rate of 7.32%, and a typical discount of 0.25 points of rate per point.
| Option | Upfront cost | Rate | Principal and interest | Monthly savings | Break-even | Net savings over 30 years |
|---|---|---|---|---|---|---|
| No points | $0 | 7.32% | $2,198 | – | – | – |
| 1 point | $3,200 | 7.07% | $2,144 | $54 | About 60 months | $16,292 |
| 2 points | $6,400 | 6.82% | $2,090 | $108 | About 60 months | $32,391 |
In this example, both options break even after about five years. If you keep the loan for the full 30 years, two points save about $32,000 after paying for them. If you sell or refinance after three years, you’d lose money on either option.
The break-even formula
Break-even (months) = cost of points ÷ monthly payment savings
- Ask each lender for the rate with no points and with one or two points.
- Calculate the principal and interest for each rate. The calculator above does this in seconds.
- Subtract to find the monthly savings.
- Divide the cost of the points by the savings.
If the lender offers less than a 0.25-point rate cut per point, the break-even gets longer. A 0.125 cut per point on the same loan would take about ten years to pay back. That’s why it’s worth comparing the points pricing from several lenders, not just their headline rates.
When paying points makes sense
Points can be worth it if:
- You expect to keep the loan, without refinancing, well beyond the break-even point.
- You have cash left over after your down payment, closing costs, and emergency fund.
- The lender’s discount per point is generous.
Points are usually not worth it if:
- You might move within five years or so.
- You think rates may fall and you’d refinance. A refinance resets the clock, and the points you paid are gone.
- Paying points would shrink your down payment enough to add PMI, or drain your savings.
Rates were 7.32% on average on October 22, 2026, according to Freddie Mac. When rates are high and many buyers hope to refinance later, paying points is often a weaker bet, because the expected life of the loan is shorter.
Alternatives to buying points
- Put the cash toward the down payment. A bigger down payment lowers the loan and can remove or reduce PMI. See our down payment guide.
- Ask for a seller-paid buydown. In a slower market, sellers sometimes pay for a temporary buydown, such as a 2-1 buydown that lowers the rate for the first two years, or for permanent points.
- Improve your credit first. A higher score can lower your rate without paying anything. Our credit score guide shows the rate differences by score.
- Shop more lenders. Comparing at least three Loan Estimates can save as much as buying a point.
Are mortgage points tax deductible?
Often, yes, for taxpayers who itemize. IRS rules generally let you deduct points paid on a loan to buy your main home in the year you pay them, if certain conditions are met. Points paid to refinance are usually deducted gradually over the life of the loan. Check IRS Publication 936 or ask a tax professional about your situation.
Frequently asked questions
How much does one mortgage point lower the rate?
Typically about 0.25 percentage points, but it can be more or less depending on the lender, the loan type, and market conditions that day.
Can I negotiate mortgage points?
You can compare lenders and ask for different combinations of rate and points. Some lenders will match a better offer from a competitor.
Can I add points to my loan balance?
On a purchase, points are usually paid in cash at closing. On some refinances they can be rolled into the loan, but that increases what you owe and lengthens the break-even.
Are lender credits the opposite of points?
Yes. With lender credits you accept a higher rate and the lender covers some closing costs. That can make sense if you’re short on cash or expect to refinance soon.
The bottom line
Mortgage points trade cash today for a lower rate for the life of the loan. With a typical 0.25-point discount per point, the break-even is around five years. Pay points only if you’re confident you’ll keep the loan well past that point and still have a healthy cash cushion after closing. Run each option through the calculator above before you decide.
Estimates only. HomeAffordLab is not a lender and does not provide financial advice. This page may contain ads. See our Advertising Disclosure.
Sources: The Mortgage Reports: Should you pay points? · IRS Publication 936, Home Mortgage Interest Deduction · CFPB: Loan Estimate explainer · Freddie Mac Primary Mortgage Market Survey