Mortgage points breakeven: are discount points worth it?

What a discount point is

One discount point equals 1% of the loan amount, paid upfront at closing to buy down the interest rate. It is a one-time fee, not a down payment — it doesn't reduce what you borrow, it only reduces the rate you pay on it. Lenders typically offer points in fractions (0.5, 1, 1.5), each fraction buying a proportionally smaller rate cut. Points are different from origination fees: origination fees pay the lender for making the loan, while discount points specifically purchase a lower rate.

The $400K worked comparison

Same $400,000 loan, 30-year fixed, two options:

Option B saves $66.12 every month, but costs $4,000 on day one. The question is how many months of $66.12 it takes to recover $4,000 — and what happens at different holding periods:

Those figures count payment savings only. The lower rate also chips away at the balance faster, so your all-in position — payments saved plus the lower remaining balance — turns positive earlier: about +$1,026 at 5 years and +$6,034 at 10 years, with the all-in breakeven landing around month 48.

The breakeven rule — two of them, actually

The simple math is one division: cash-flow breakeven = points cost ÷ monthly savings. Here, $4,000 ÷ $66.12 = 60.5 months. That's the month your lower payments alone have recouped the $4,000.

But there's a second, more honest breakeven: the all-in (equity-adjusted) breakeven — the first month your total position, counting both the payment savings and the lower remaining loan balance, is better with the point than without it. Because the 6.50% loan amortizes faster, you owe about $1,059 less at month 60 than you would at 6.75%, and that equity edge pulls the all-in breakeven forward to around month 48.

The practical rule: if you will sell or refinance before roughly month 48, the point loses money even all-in. Between months 48 and 60, you're ahead on total wealth but still short on payment savings alone — which matters if cash flow, not net worth, is the constraint. Be honest about your timeline before you buy.

When points win

• You're staying 7+ years. Past both breakevens with margin, the savings compound — +$3,934 in payment savings at 10 years (+$6,034 all-in), +$19,803 over the full term.
• No refinance on the horizon. If rates are already near historic lows or your credit situation won't improve, the lower rate is likely permanent.
• You have the cash comfortably. The $4,000 comes from funds beyond your down payment, closing costs, and emergency reserves — not from stretching.

When points lose

• Selling or refinancing early. The unrecovered cost vanishes — refinance in year 3 and you've paid $4,000 for about $2,380 of payment savings plus roughly $630 of extra equity: still about $990 short all-in.
• Adjustable-rate mortgages. If the rate resets in 5–7 years anyway, you're buying a temporary discount at a permanent price.
• Cash is tight. $4,000 toward closing costs, moving expenses, or an emergency fund usually beats a rate buydown that takes 5 years to pay off.

If a refinance might be in your future, read when to refinance your mortgage before spending anything on points.

Points vs. a larger down payment

It's tempting to compare $4,000 in points against $4,000 more down. They do different things: points buy a lower rate on the same balance; a bigger down payment shrinks the balance itself, lowering every payment and total interest — and if it gets you to 20% down, it can eliminate PMI entirely, which often dwarfs the points savings. Run the breakeven on both options with the same dollars before deciding.

Lender credits: points in reverse

A lender credit is a negative point — instead of paying $4,000 to buy the rate down 0.25%, the lender gives you roughly $4,000 of closing-cost credit and charges you a rate about 0.25% higher. On our $400K example, that's the same $66.12 per month, but added to your payment instead of subtracted.

The same breakeven math decides it, inverted: taking a $4,000 credit costs about $66.12 more per month, so on payment savings alone the credit "wins" if you sell or refinance within roughly 60 months and "loses" after that — all-in, the crossover is closer to month 48, since the higher rate also leaves you with a larger remaining balance. Credits make sense when cash at closing is the constraint, or when you expect to refinance before the higher rate has time to hurt — the exact situations where buying points loses. Ask your lender for both quotes (par rate, one point down, one credit up) on the same Loan Estimate so the numbers are comparable.

Common mistakes

• Buying points before a likely refinance. The single costliest error — you pay the full $4,000 but capture only a few months of savings before the new loan wipes the slate clean.
• Ignoring the time value of money. $4,000 today is worth more than $4,000 spread over 5 years of $66.12 payments; the cash-flow breakeven is slightly longer than 60.5 months once you account for that.
• Confusing origination fees with points. Origination fees don't buy you a lower rate — only discount points do. Make sure you're comparing rate buydowns, not lender fees, when you shop quotes.

Bottom line

One point on a $400K mortgage — $4,000 to go from 6.75% to 6.50% — saves $66.12 a month: cash-flow breakeven at 60.5 months, all-in breakeven around month 48 once the lower balance counts. If you'll keep the loan 7+ years with no refinance planned, it's a solid deal (+$3,934 in payment savings at 10 years, +$6,034 all-in). If there's any real chance you sell or refinance before year four, keep the $4,000. Judge the decision by the all-in breakeven — that's the number that reflects your actual wealth, not just your monthly payment.

Run your own numbers

Our free Refinance Calculator compares your current loan against a new rate, factoring in closing costs and breakeven timing.

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Related research

• When to refinance your mortgage — is refinancing worth it? Break-even math and rate-drop rules of thumb.
• How much house by salary: the full table — price ranges by income before you price a points buy-down.
• Extra mortgage payments — the math on paying principal early and cutting total interest.

Related calculators

• Refinance Analyzer — model whether refinancing beats buying points.
• Mortgage Payoff — see how extra payments change your loan's total cost.
• Rent vs Buy — compare buying (with or without points) against renting.