Money guide · Mortgages and home-buying costs
Are mortgage points worth it? Calculate break-even
Compare upfront discount points with monthly payment savings and the length of time you expect to keep the loan.
How it works
One point equals 1% of the loan amount, but it does not buy a universal percentage reduction in the rate. Offers vary by lender and market conditions. Lender credits can operate in the other direction, reducing upfront cash in exchange for a different rate. Get paired offers for the same loan amount and term.
A worked example
On a $300,000 loan, one point costs $3,000. If it reduces the monthly principal-and-interest payment by $60, the simple break-even is $3,000 / $60 = 50 months. Selling or refinancing after 30 months would produce $1,800 of payment savings in this simplified example, below the upfront cost. Taxes, remaining principal, and time value complicate a full comparison.
What to compare
Compare the point cost, payment change, cash reserves after closing, and your realistic holding period. Use several horizons rather than assuming you will keep the loan to maturity. A family anticipating a move may evaluate the same offer differently from someone expecting a long stay. Obtain the savings from actual quotes, not a generic points table.
A common mistake to avoid
Do not assume a lower advertised rate is the least expensive offer. Nor should simple break-even substitute for a total-cost comparison when terms differ. Preserve funds for transaction costs and emergencies, and include other fees that change between the quoted options.
Does one point always lower the rate by the same amount?
No. One point defines the cost as 1% of the loan amount; the rate reduction is determined by the particular offer.
Sources and further reading
Connect this to inflation
Inflation changes the spending power of money over time. Read the related inflation explainer, or compare dollars across years using your own assumptions.