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The short answer
Discount points only pay off if you keep the loan past the break-even point. One point (1% of the loan, paid upfront) typically buys your rate down by about 0.25%. On a $400,000 loan: paying $4,000 for a 0.25% lower rate saves roughly $60/month — so you break even at about 5½ years. Sell or refinance before then, and the points were wasted money. After that, every month is pure savings. The math is simple: break-even (months) = points cost ÷ monthly savings.
What discount points are (and aren't)
- Discount points are optional upfront fees you pay to permanently lower your interest rate. They're listed in Section A of the Loan Estimate.
- 1 point = 1% of the loan amount. On a $400,000 loan, 1 point = $4,000.
- Typical buy-down: each point lowers the rate by roughly 0.20%–0.25%. This varies by lender and market — always ask for the exact trade.
- Points are NOT the same as origination fees or lender credits. Origination fees don't change your rate. Lender credits go the other direction — the lender pays you at closing in exchange for a higher rate.
The break-even math, worked
| Zero points | 1 point | |
|---|---|---|
| Loan amount | $400,000 | $400,000 |
| Rate | 6.75% | 6.50% |
| Upfront cost | $0 | $4,000 |
| Monthly P&I | $2,594 | $2,528 |
| Monthly savings | — | $66 |
| Break-even | — | ~61 months (~5 years) |
Keep the loan 10 years: you save $66 × 120 months = $7,920, minus the $4,000 cost = $3,920 ahead. Sell at year 3: you saved $66 × 36 = $2,376 but paid $4,000 = $1,624 behind.
When points make sense
- You're staying long-term. This is your "forever home" or a 10+ year hold — points are usually a good deal.
- You have the cash. Points require upfront money that could otherwise go to down payment, reserves, or investments.
- Rates are high and unlikely to drop soon. If a refinance in 2–3 years is plausible, points are likely wasted — you'd pay them again on the new loan.
When points don't make sense
- You might move or refinance within 5 years. The average homeowner moves every ~7 years; the average refinance cycle is even shorter when rates fall.
- You're cash-constrained at closing. Every dollar in points is a dollar not in your emergency fund.
- The buy-down is expensive. Sometimes lenders offer a poor trade — 1 point for only 0.125% off. Run the break-even; if it's 8+ years, walk away from the points.
- You're taking an ARM. Paying points on a loan whose rate resets in 5–7 years rarely pencils out.
Points vs. lender credits: the mirror image
The same math works in reverse. A lender credit of $4,000 in exchange for a 0.25% higher rate costs you $66/month extra. If you sell or refinance within 5 years, the credit wins — you pocketed $4,000 upfront and didn't pay the higher rate long enough for it to catch up. This is why short-term holders should often take the credit and long-term holders should often pay the points.
Methodology and limitations
The 0.25%-per-point buy-down is a typical market ratio; actual pricing varies by lender, loan program, and day — always get the specific trade in writing on the Loan Estimate. Break-even ignores the time value of money and tax effects (points on a purchase may be deductible in the year paid; consult IRS Publication 936 and a tax advisor). Rate data referenced is as of October 2026.
Reviewed by the LoanMate.ai editorial team.
Primary sources
- Consumer Financial Protection Bureau (CFPB): Loan Estimate form, Section A (origination charges)
- IRS Publication 936: home mortgage interest deduction (points)
Next action
Compare your Loan Estimates side by side → — the tool calculates break-even on points vs. credits automatically. Or run the numbers in the mortgage calculator →.