How Mortgage Points Work: Buying Down Your Rate

Mortgage points, also called discount points, are an upfront fee paid at closing in exchange for a lower interest rate on the loan. They are optional on most loan programs, and deciding whether to buy them comes down to a break-even calculation more than a general rule.

What a point actually costs

One point typically equals 1% of the loan amount. On a $350,000 loan, one point costs $3,500. Lenders vary in exactly how much rate reduction a point buys, but a common range is roughly 0.125% to 0.25% off the interest rate per point, though this depends on the lender, loan type, and market conditions at the time.

Points can usually be purchased in fractional amounts too — half a point, a quarter point — not just whole numbers.

Why the break-even point matters

Paying points lowers the monthly principal-and-interest payment, but the upfront cost takes time to recover through those monthly savings. The break-even point is roughly:

Cost of points ÷ Monthly payment savings = Months to break even

If one-point costs $3,500 and lowers the monthly payment by $35, the break-even point is around 100 months — over eight years. If the loan is paid off, refinanced, or the home is sold before that point, the points did not pay for themselves.

This is why points tend to make more sense for buyers planning to stay in the home and keep the same loan for many years, and less sense for buyers who expect to move, refinance, or sell within a shorter window.

Points are not the same as origination fees

Discount points reduce the interest rate and are optional. Origination fees are a separate lender charge for processing the loan and do not lower the rate. Both typically appear on the Loan Estimate, but they serve different purposes, and it's worth checking that a "point" quoted is actually a discount point rather than a fee being described loosely.

Comparing point options across lenders

Because different lenders price points differently, the same rate isn't always the same deal. The Consumer Financial Protection Bureau's Loan Estimate explainer describes how upfront costs, including points, are disclosed so they can be compared side by side across lenders quoting the same rate.

A quick way to think about it

  • Staying long-term, have the cash available: buying points can make sense if the break-even period fits comfortably within the expected time in the home.
  • Uncertain how long you'll keep the loan, or cash is tight for closing: a no-points or lower-points option may be safer, even at a slightly higher rate.
  • Comparing multiple lenders: compare the full Loan Estimate, not just the advertised rate — a lower rate with more points paid isn't automatically the better deal.

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