Key takeaway
A discount point costs 1% of the loan — $4,000 on a $400,000 mortgage — and buys a permanently lower rate. In our example, 1 point drops the rate from 6.75% to 6.50%, cutting principal and interest from $2,594.39 to $2,528.27 per month: $66.12 in savings. Breakeven is $4,000 ÷ $66.12 = 60.5 months, just over 5 years. Sell or refinance before month 61 and the point loses money; stay 10 years and you're up $3,934.
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 A: 0 points | Option B: 1 point | |
|---|---|---|
| Rate | 6.75% | 6.50% |
| Upfront cost | $0 | $4,000 |
| Monthly P&I | $2,594.39 | $2,528.27 |
| Monthly savings vs A | — | $66.12 |
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:
| Holding period | Net result of buying the point |
|---|---|
| 5 years | −$33 (essentially breakeven) |
| 10 years | +$3,934 |
| Full 30 years | +$19,803 |
The breakeven rule
The math is one division: breakeven months = points cost ÷ monthly savings. Here, $4,000 ÷ $66.12 = 60.5 months. Every month you hold the loan past month 60.5, the point earns you $66.12; every month short of it, you're still in the hole. The hard rule: if you will sell or refinance before month 61, points lose money — full stop. Be honest about your timeline before you buy.
When points win
- You're staying 7+ years. Past the 60.5-month breakeven with margin, the savings compound — +$3,934 at 10 years, +$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 savings.
- 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.
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 true 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 and breaks even at 60.5 months. If you'll keep the loan 7+ years with no refinance planned, it's a solid deal (+$3,934 at 10 years). If there's any real chance you sell or refinance before month 61, keep the $4,000. The entire decision is the breakeven division: points cost ÷ monthly savings, compared honestly against your timeline.
Run your own numbers
Our free Refinance Calculator compares your current loan against a new rate, factoring in closing costs and breakeven timing.
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.
Frequently asked questions
How do you calculate the breakeven on mortgage points?
Divide the upfront cost of the points by the monthly payment savings. In our example: $4,000 for 1 point divided by $66.12 per month in savings equals 60.5 months — just over 5 years. If you keep the mortgage past that point, the points pay off; if you sell or refinance before it, they lose money.
Is 1 point worth it on a $400K mortgage?
It depends on how long you keep the loan. One point costs $4,000 and cuts the payment from $2,594.39 to $2,528.27 per month, saving $66.12. Breakeven is 60.5 months. Stay 10 years and you are up $3,934; stay the full 30 years and you save $19,803. Sell or refinance before month 61 and the point loses money.
What happens to points if I refinance?
The unrecovered cost of the points is lost. Points buy a lower rate on your current loan only — refinancing starts a brand-new loan, and you do not get a refund for the months you never used. That is why buying points before a likely refinance is one of the costliest mistakes: you pay the full $4,000 but capture only a few months of $66.12 savings.
Are discount points tax deductible?
Discount points are generally deductible as prepaid interest in the year paid for a purchase mortgage, subject to limits — consult a tax professional about your situation.
Should I buy points or make a bigger down payment?
A bigger down payment shrinks the loan itself — lowering every payment, reducing total interest, and possibly avoiding PMI — while points only buy a lower rate on the same loan balance. If the extra cash would get you to 20% down and kill PMI, the down payment usually wins. Compare the breakeven math of each option with the same dollars before deciding.
Last updated: September 28, 2026