⚡ POINTS BREAK-EVEN — QUICK REFERENCE ($300K LOAN)
| Points Paid | Upfront Cost | Rate Reduction | Monthly Savings | Break-Even |
|---|---|---|---|---|
| 0.5 points | $1,500 | −0.125% | $26/mo | 58 months (4.8 yrs) |
| 1 point | $3,000 | −0.25% | $51/mo | 59 months (4.9 yrs) |
| 2 points | $6,000 | −0.50% | $102/mo | 59 months (4.9 yrs) |
| 3 points | $9,000 | −0.75% | $153/mo | 59 months (4.9 yrs) |
Based on $300K loan, 0.25% rate reduction per point, 7.25% base rate · Break-even ≈ 5 years in all scenarios
Mortgage Discount Points 2026: Break-Even Calculator — Are They Worth Paying?
Lenders advertise attractive "5.5%" rates in bold — then bury "2 points" in the fine print. That's $10,000 in extra closing costs on a $500K loan. Whether points are worth it depends entirely on how long you keep the loan. Compare lenders who offer competitive rates with zero or low points.
How Discount Points Work (The Hidden Math)
Every lender quotes a rate at a specific "price" — measured in points. The same loan can be structured dozens of ways:
| Rate | Points | Upfront Cost ($400K) | Monthly Payment | Total Cost over 7 yrs |
|---|---|---|---|---|
| 7.75% | −0.5 (lender credit) | +$2,000 credit | $2,864 | $238,148 (cost reduced by credit) |
| 7.50% | 0 points | $0 | $2,797 | $235,548 |
| 7.25% | 1 point | $4,000 | $2,729 | $235,636 (savings eaten by points) |
| 7.00% | 2 points | $8,000 | $2,661 | $237,524 (points too expensive) |
| 6.75% | 3 points | $12,000 | $2,594 | $241,412 (definitely not worth it for 7-yr hold) |
The Break-Even Calculator: Your Go-To Formula
📐 Break-Even Formula
Example 1 — 1 point on $350K loan
$3,500 ÷ $60/mo savings = 58 months (4.8 years)
✅ Worth it if holding 6+ years
Example 2 — 2 points on $500K loan
$10,000 ÷ $145/mo savings = 69 months (5.8 years)
⚠️ Only worth it if holding 7+ years
Example 3 — 0.5 points on $250K loan
$1,250 ÷ $32/mo savings = 39 months (3.3 years)
✅ Probably worth it for most buyers
When Points Are Worth It vs When to Skip Them
✅ Pay Points When:
- ✅ You're buying a forever home (10+ year hold)
- ✅ Break-even is under 36 months
- ✅ You have cash and want to lower monthly payment long-term
- ✅ Rates are high (more room to buy down)
- ✅ You're in a high tax bracket (deduction is more valuable)
❌ Skip Points When:
- ❌ Plan to sell or refinance in under 5 years
- ❌ Rates expected to drop (you'll refinance anyway)
- ❌ Break-even is over 60 months
- ❌ Cash needed for down payment / reserves
- ❌ Buying in a volatile/declining market
In 2026 specifically: with rate cuts expected in 2027–2028, paying points is risky — you may refinance to a lower rate in 2 years, rendering your points worthless. Compare no-point lenders who deliver competitive rates without upfront costs.
Negative Points (Lender Credits): Getting Paid to Take a Higher Rate
The inverse of discount points: lender credits (negative points) give you cash at closing in exchange for accepting a higher rate. Perfect when you're short on cash or expect to refinance soon.
Example: $400K loan — Lender Credit Option
Zero-cost option (0 points):
- • Rate: 7.50%
- • Closing costs: $6,000 out of pocket
- • Monthly: $2,797
Lender credit option (−1 point):
- • Rate: 7.75% (+0.25%)
- • Closing costs: $2,000 ($4,000 credit covers most)
- • Monthly: $2,864 (+$67/mo)
- • Good if you'll refinance within 5 years
Find Lenders Who Offer Great Rates WITHOUT Charging Points
Some lenders advertise low rates that require 2–3 points to achieve. Compare lenders on APR — not just rate — to find who offers the best deal with zero or minimal points.
Discount Points FAQ
What are mortgage discount points and how much do they cost?
Mortgage discount points (also called "buying down the rate") are upfront fees you pay at closing to permanently reduce your interest rate. One point = 1% of the loan amount. Cost: 1 point on a $300,000 loan = $3,000. Rate reduction per point: typically 0.25% per point, though this varies by lender and market conditions. Example: a lender offers 7.25% with zero points, or 7.00% with 1 point ($3,000 upfront). The $3,000 buys you 0.25% rate reduction. Points are also tax-deductible in the year paid (for primary residence purchase, if you itemize). Always compare the APR — which incorporates points — rather than just the interest rate.
How do I calculate if mortgage points are worth it?
The break-even formula: Break-even months = cost of points ÷ monthly savings. Example: 1 point on $300K loan = $3,000. Rate reduction: 7.25% → 7.00%. Monthly payment difference: $2,013 vs $1,996 = $17/month savings... wait, that's on $300K. Actually: $300K at 7.25% = $2,047/mo. $300K at 7.00% = $1,996/mo. Monthly savings = $51. Break-even: $3,000 ÷ $51 = 59 months (nearly 5 years). If you stay 5+ years, paying the point saves money. If you sell or refinance before 5 years, you lose money on the point. Rule: points are only worth it if you KNOW you'll keep the loan long enough to pass the break-even.
Are mortgage points tax deductible?
Yes — mortgage discount points paid at closing for a primary residence purchase are fully tax deductible in the year paid, if you itemize deductions (not if you take the standard deduction). Requirements: points must be for a primary residence (not investment property or refinance — those must be deducted over the loan term). Must be a percentage of the loan amount. Must not be for services like appraisal or title insurance. The tax deduction reduces the effective cost of points: if you're in the 22% tax bracket and paid $3,000 in points, your after-tax cost is $2,340, which shortens your break-even period. Consult a tax advisor for your specific situation.
What is a "no-point" mortgage lender?
A no-point mortgage lender offers interest rates without charging origination points (0 discount points at closing). The interest rate will be higher than a loan with points, but closing costs are lower. This is ideal for buyers who: plan to refinance within 5 years, don't have extra cash for points, or expect rates to drop and want flexibility to refinance without having "sunk" money into points. Many online lenders (Better.com, LoanDepot, Credible partner lenders) specialize in low-fee, no-point mortgages. Always compare the APR of a no-point loan vs a loan with points over your expected holding period.
Related Mortgage Cost Guides
Meet Sarah
Senior Mortgage Advisor & VA Loan Specialist
Sarah Mitchell brings over 12 years of mortgage industry expertise, specializing in VA loans and first-time homebuyer programs. As a certified NMLS professional, she has helped thousands of veterans and military families achieve homeownership through specialized loan programs. Her deep understanding of VA benefits and down payment assistance programs makes her a trusted advisor for service members transitioning to civilian life.
EXPERTISE:
KEY ACHIEVEMENT:
Helped 2,500+ veterans secure home loans