Buying mortgage points can be a smart move for borrowers who want to lower their long-term interest costs, but it’s not the right choice for everyone. In this guide, we’ll explain what mortgage points are, how they work, and when it makes financial sense to buy them. We’ll also walk through some example calculations to help you decide whether buying points aligns with your budget and homeownership goals.

What does it mean to buy mortgage points?

When you buy mortgage points, you’re paying an upfront fee at closing in exchange for a lower interest rate on your home loan. This is also called “paying discount points” or a “rate buydown.” One mortgage point typically costs 1% of your loan amount and lowers your interest rate by about 0.25%, though this can vary by lender and market conditions.

Say, for example, that you’re taking out a $300,000 mortgage. In this case, one point would probably cost $3,000 ($300,000 * 1%, or 0.01). In return, your lender might reduce your interest rate from 6.5% to 6.25%.

Buying mortgage points increases your closing costs but can reduce your monthly mortgage payment — and your total interest paid over the life of the loan.

How to calculate the break-even point

To decide whether you should buy mortgage points, you need to calculate your break-even point. This tells you how long it will take for your monthly savings to equal the upfront cost you paid for the points.

Here’s how to calculate it:

1. Find the cost of the points (e.g., 1 point = 1% of loan amount)
2. Determine your monthly savings from the reduced interest rate
3. Divide the cost of the points by your monthly savings

Let’s say you buy one point for $3,000 and it reduces your monthly payment by $50. Your break-even point is $3,000 ÷ $50 = 60 months, or five years. If you plan to keep the mortgage longer than five years, buying the point could save you money in the long run.

When it makes sense to buy mortgage points

Buying mortgage points is most beneficial when the upfront cost leads to significant long-term savings. Here are scenarios where it usually makes financial sense:

• You plan to stay in the home for a long time: The longer you hold the mortgage, the more months you have to benefit from the lower monthly payment. If you’re planning to stay put for 7–10 years or longer, the savings can add up.
• You want to lower your monthly payments: If you’re budgeting tightly or want to reduce your debt-to-income ratio, lowering your monthly mortgage payment can provide financial breathing room.
• You have extra cash on hand: If you have more savings than you need for your down payment and emergency fund, using some of it to buy mortgage points could be a smart investment.
• You’re locking in a fixed-rate loan: Mortgage points are more valuable when tied to a long-term fixed-rate mortgage. On adjustable-rate loans, the benefit of points may expire before the rate adjusts.

When you shouldn’t buy mortgage points

In some cases, buying mortgage points may not be a good idea. Here are reasons to skip them:

• You expect to move or refinance soon: If you’ll sell the home or refinance within a few years, you probably won’t hit your break-even point — and the upfront cost of the points will be a sunk cost.
• You need that money for something else: If buying points depletes your emergency fund or prevents you from making a larger down payment, you’re likely better off skipping them.
• You want to minimize closing costs: Mortgage points increase your upfront expenses, which can be a burden if you're trying to get into a home with minimal out-of-pocket costs.
• The interest rate benefit is small: Sometimes the rate reduction you get from a point is less than 0.25%, which may not provide enough monthly savings to justify the cost.

Buying points vs making a larger down payment

If you have extra cash, you might be wondering whether to use it to buy mortgage points or make a bigger down payment. Here's how to weigh the decision:

• Larger down payment: Reduces your loan amount, may eliminate private mortgage insurance (PMI), and lowers your monthly payment
• Mortgage points: Reduces your interest rate, which can lower your payment and total interest costs over time

Which is better? It depends on your goals. A larger down payment improves your equity and may help you qualify for a better rate or avoid PMI. Buying points could save more over the long term, especially if you're already making a sizable down payment and aren't worried about PMI.

How many mortgage points can you buy?

Most lenders allow you to buy up to three points, but this can vary based on your loan program and the lender’s policies. Keep in mind that buying more than one or two points often yields diminishing returns. The interest rate reduction from each additional point is usually smaller.

Also, be aware that the IRS considers mortgage points tax-deductible in many cases if the loan is for your primary residence. Consult a tax advisor to understand how the deduction might apply to your situation.

How to compare lenders when buying points

When shopping for a mortgage, be sure to compare loan estimates side by side. Lenders may offer different interest rate reductions for the same cost in points. Some lenders may also offer lender credits (the opposite of points) to help cover closing costs in exchange for a slightly higher interest rate.

Look at these figures to compare offers:

• The base interest rate (with 0 points)
• The cost and benefit of each point
• The monthly payment and total interest paid over time
• The break-even point

A lender with a slightly higher base rate might offer more favorable point pricing, so it’s worth comparing multiple options to find the best fit.

Getting started on your mortgage journey

If you're wondering when to buy mortgage points, the answer comes down to your long-term plans and financial situation. Buying points can be a smart move if you plan to stay in the home for many years and want to reduce your interest costs. But if you’re unsure how long you’ll keep the mortgage — or if the upfront cost puts pressure on your budget — it might be better to pass.

Bottom line: Do the math. Use a break-even calculator or work with your lender to see how buying points affects your total loan cost. In some cases, the savings can be significant — just make sure it fits into your bigger financial picture.

Want to find the best rates and see how points could work for you? Use our mortgage comparison tool to get personalized quotes and explore whether buying points is the right move for your home financing strategy. You can add points to your rate evaluations by choosing “More Filters” and picking the number of points you want from the drop-down menu. 

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