Mortgage Points Explained: Are They Worth Paying?

When you get a mortgage quote, you'll often see an option to pay 'points' to lower your interest rate. It sounds appealing — who doesn't want a lower rate? But mortgage points come with an upfront cost, and whether they're worth it depends entirely on how long you plan to stay in the home.

What Are Mortgage Points?

One mortgage point equals 1% of your loan amount. On a $300,000 mortgage, one point costs $3,000. In exchange for paying that upfront, your lender reduces your interest rate — typically by 0.25% per point, though this varies by lender and market conditions.

There are two types of points: discount points (what most people mean) which permanently lower your rate, and origination points which are just fees lenders charge to process the loan. Always clarify which type you're being quoted.

How Points Affect Your Payment

Example: $300,000 loan, 30-year fixed mortgage, 7.0% rate vs 6.75% rate (after paying 1 point = $3,000).

• At 7.0%: monthly payment = $1,996
• At 6.75%: monthly payment = $1,946
• Monthly savings: $50
• Cost of 1 point: $3,000
• Break-even: $3,000 ÷ $50 = 60 months (5 years)

If you stay in the home longer than 5 years, buying the point saves you money. If you sell or refinance before then, you lose money.

When Buying Points Makes Sense

• You plan to stay in the home for 7+ years
• You have cash available and won't need it for other expenses
• You're in a high-tax bracket and want to maximize mortgage interest deductions
• Rates are high and you want to lock in a lower long-term payment

When You Should Skip Points

• You plan to sell or refinance within 5 years
• You need that cash for a down payment or emergency fund
• Rates are expected to fall (you'd likely refinance anyway)
• You're a first-time buyer stretching your budget

Are Points Tax Deductible?

Yes — discount points paid on a home purchase are generally fully deductible in the year you pay them if you itemize deductions. Points paid on a refinance must be deducted over the life of the loan. Always confirm with a tax professional.

Negative Points (Lender Credits)

The opposite also exists: negative points, or lender credits, give you cash back at closing in exchange for a higher interest rate. This can make sense if you're tight on closing costs and plan to sell or refinance soon.