If you're applying for a mortgage, you've likely come across the option to buy mortgage points. But before you spend thousands at closing, it's important to understand exactly how much mortgage points cost, how they impact your interest rate, and whether they’re worth it in the long run. In this guide, we’ll break down the typical cost of mortgage points, how they’re calculated, and how to decide if buying points fits your financial goals.

What are mortgage points?

Mortgage points, also known as discount points, are optional fees you can pay to lower your mortgage interest rate. Essentially, you're prepaying interest upfront in exchange for a lower rate over the life of the loan. This is sometimes called "buying down the rate."

Each point typically reduces your rate by 0.25%, although this can vary depending on market conditions, your lender, and the type of loan you're taking out. Some lenders may offer slightly more or less rate reduction per point.

Mortgage points vs. lender credits

While buying points means paying extra upfront to get a lower interest rate, lender credits are the opposite: You accept a higher rate in exchange for help covering your closing costs.

This tradeoff can make sense if:

• You need to minimize upfront costs
• You plan to sell or refinance soon
• You’d rather keep your cash on hand for emergencies or renovations

Both strategies — buying points and accepting lender credits — can be used strategically depending on your financial goals and timeline.

So, how much do mortgage points cost?

Mortgage points are calculated as a percentage of your loan amount. Usually, one point equals 1% of your loan amount. If you're borrowing $400,000, for example, one point would probably cost $4,000.

In this example, here’s how it works:

• 1 point = 1% of loan amount = $4,000 
• 2 points = 2% of loan amount = $8,000
• 0.5 points = 0.5% of loan amount = $2,000

The actual dollar cost depends entirely on the size of your mortgage. If you’re getting a jumbo loan, for example, the cost of each point can be significant. Conversely, on a smaller loan, buying points may be less expensive but also provide smaller monthly savings.

How much does each point lower your rate?

On average, one point lowers your interest rate by about 0.25%. So if your quoted rate is 7%, paying one point might reduce it to 6.75%.

However, this isn’t a fixed rule. The amount of rate reduction per point depends on:

• The lender’s pricing model
• The loan type (conventional, FHA, VA, etc.)
• The market environment
• Your credit score and down payment

That’s why it’s essential to compare multiple lenders and look at their rate sheets. One lender might offer a 0.25% reduction per point, while another might offer 0.375% or only 0.20%.

What determines the cost and benefit of points?

Several factors influence both the cost of mortgage points and the savings they provide, including the:

• Loan size: Bigger loans make each point more expensive, but they also offer more savings on interest over time.
• Loan term: The longer the term (e.g., 30 years vs. 15 years), the more time you have to benefit from the lower interest rate.
• Rate environment: In high-rate environments, buying points may yield more noticeable savings.
• Lender pricing: Some lenders structure their point pricing to offer more or less value per point.
• Borrower profile: Credit score, loan type, and loan-to-value ratio all play a role in what you’ll be offered.

Is it worth paying for points?

To determine if buying mortgage points is worth it, calculate your break-even point, or the amount of time it takes for your monthly interest savings to equal the upfront cost of the points.

Here’s a step-by-step example:

• You buy 1 point for $4,000 on a $400,000 loan
• That reduces your rate from 7% to 6.75%
• Your monthly payment drops by about $65
• $4,000 ÷ $65 = 61.5 months
• You’ll hit your break-even point at five years and two months

If you plan to keep the loan longer than six years, the savings will start to outweigh the upfront cost. But if you plan to sell or refinance within a few years, you’ll likely lose money by buying points.

How many mortgage points can you buy?

Most lenders allow you to purchase up to three mortgage points, though some may cap it at two. Keep in mind that the more points you buy, the more expensive it becomes — and the rate reduction per point often shrinks with each additional point.

For example:

• One point might lower your rate by 0.25%
• Two points might lower it by 0.45%
• Three points might lower it by only 0.60%

You’ll want to do the math on each scenario and evaluate your break-even point at every level. Sometimes buying just a fraction of a point (like 0.5 or 0.75 points) offers the best value.

Are mortgage points tax-deductible?

In many cases, yes. The IRS generally allows you to deduct mortgage points as prepaid interest on a loan for your primary residence, as long as you itemize your deductions. If the points are for a refinance or a second home, different rules may apply.

You should consult with a tax advisor or CPA to see how the deduction might apply to your specific situation.

Tips for comparing the cost of mortgage points

When shopping for a mortgage, always ask lenders for loan estimates that include several rate and point scenarios. That way, you can evaluate not just the base rate, but how much different point levels cost and how much they save over time.

Pay attention to:

• The exact cost of each point in dollars
• The rate reduction tied to each point
• Your estimated monthly savings
• The total interest paid over the life of the loan
• The break-even point

This makes it easier to compare offers apples-to-apples, especially when you’re working with multiple lenders or loan types.

Know the cost of mortgage points before you buy

So, how much do mortgage points cost? The answer is simple in theory: one point equals 1% of your loan amount. The implications are more complex, though. Buying points can save you thousands in interest over the life of the loan, but only if you stay in the home long enough to break even.

If you’re weighing your options, start by running the numbers on your loan amount, rate quote, and expected length of stay. From there, compare point structures across lenders to find the most cost-effective way to reduce your rate — without paying more than you’ll get back.

Curious how mortgage points affect your bottom line? Use our mortgage comparison tool to see how different rates and point options stack up from top lenders. 

Bring points into the equation by clicking “More Filters” and choosing the number of points you want from the drop-down menu. Evaluating rates with and without points can help you lock in the smartest deal for your budget and long-term plans.

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