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The short answer
Points = you pay upfront to *lower* your rate. Lender credits = the lender pays *you* upfront (reducing cash to close) in exchange for a *higher* rate. Neither is free — both are priced. The right choice depends entirely on how long you'll keep the loan: divide the upfront cost (or credit) by the monthly payment difference to get the break-even month. If you'll sell or refinance before break-even, take the credit. If you'll stay well past it, pay the points.
The math
Paying points — break-even formula:
Break-even (months) = Upfront points cost ÷ Monthly payment savingsExample: $500,000 loan. Paying 1 point ($5,000) drops the rate from 6.75% to 6.50%, saving $84/month. $5,000 ÷ $84 = ~60 months (5 years) to break even.
Taking a lender credit — same logic in reverse:
Break-even (months) = Credit amount ÷ Monthly payment increaseExample: a $3,000 lender credit raises the rate from 6.75% to 7.00%, costing $96/month more. $3,000 ÷ $96 = ~31 months — after 31 months, the credit has cost you more than it saved.
Decision framework
| Your situation | Usually better |
|---|---|
| Selling or refinancing within 2–3 years | Take the lender credit |
| Staying 7+ years, stable life | Consider paying points |
| Uncertain timeline | Neither extreme — take the par (zero-point) rate |
| Cash-constrained at closing | Lender credit (but know the long-term cost) |
| High tax bracket, itemizing | Points may be deductible in year paid (see Taxes hub; consult a tax advisor) |
Why "par rate" is your anchor
Every lender has a par rate — the rate with zero points and zero credits. Points buy *below* par; credits price *above* par. Always ask for the par quote first. It's the only clean baseline for comparing what points and credits actually cost you.
Common traps
- Comparing points across lenders without matching rates. 1 point at Lender A may buy a different reduction than at Lender B. Compare the *rate reduction per point*.
- Ignoring the time horizon. Points are a bet you'll stay. The average homeowner refinances or sells in under 7 years — most point purchases don't break even.
- Credits that exceed closing costs. Excess credits can't always be applied elsewhere; know the rules before counting on them.
- ARM borrowers buying points. If your rate adjusts in 5 years, long-break-even points rarely make sense.
Tax note (not tax advice)
Origination points on a purchase mortgage are generally deductible as mortgage interest in the year paid (if you itemize); points on a refinance are typically deducted ratably over the loan term. Lender credits are not deductible. Tax law changes — consult a tax professional for your situation.
Methodology and limitations
Break-even math assumes a fixed rate, no prepayment, and ignores time value of money and tax effects unless modeled. Actual lender pricing varies daily. Illustrative figures as of October 2026.
Reviewed by the LoanMate.ai editorial team.
Primary sources
- CFPB: "What are discount points?" (Your Home Loan Toolkit)
- IRS Publication 936 (mortgage interest deduction)
Next action
Model your scenarios in the Loan Estimate tool → — enter both quotes and see the break-even calculated automatically.