Mortgage Points 2026: Should You Buy Down Your Rate or Keep Your Cash?
Pay $4,000 upfront to lower your rate 0.25%? Sounds simple, but the math determines if you'll save $60K or lose $4K. Here's the complete break-even analysis.
⚡ Quick Answer: Are Mortgage Points Worth It?
Mortgage points are worth it IF: You'll stay in the home past the break-even point (typically 5-7 years). With 2026 rates at 6.5-7%, buying 1-2 points can save $50K-$100K over 30 years.
NOT worth it if: Selling/refinancing within 3-5 years, low cash reserves, or expecting rates to drop significantly.
🎯 Compare Rates WITH and WITHOUT Points
Get personalized quotes showing exact costs with 0, 1, and 2 points. See your break-even timeline:
📊 Mortgage Points at a Glance
📋 In This Guide
What Are Mortgage Points?
Mortgage points (also called discount points) are an optional upfront fee you pay to your lender to permanently lower your interest rate. Think of it as "prepaying interest" to reduce your monthly payment.
📐 The Formula:
1 point = 1% of loan amount = typically 0.25% rate reduction
Example: $400,000 loan → 1 point = $4,000 → Rate drops from 6.75% to 6.50%
How Mortgage Points Work
❌ WITHOUT Points
- • Loan: $400,000
- • Rate: 6.75%
- • Monthly payment: $2,594
- • Total interest (30 yrs): $533,840
- • Upfront cost: $0
✅ WITH 1 Point
- • Loan: $400,000
- • Rate: 6.50%
- • Monthly payment: $2,528
- • Total interest (30 yrs): $509,080
- • Upfront cost: $4,000
Save $66/mo = $23,760 over 30 years!
How Much Do Mortgage Points Cost?
One point always costs 1% of your loan amount. Here's what that means for different loan sizes:
| Loan Amount | 1 Point Cost | 2 Points Cost | Rate Reduction |
|---|---|---|---|
| $200,000 | $2,000 | $4,000 | 0.25% / 0.50% |
| $300,000 | $3,000 | $6,000 | 0.25% / 0.50% |
| $400,000 | $4,000 | $8,000 | 0.25% / 0.50% |
| $500,000 | $5,000 | $10,000 | 0.25% / 0.50% |
| $750,000 | $7,500 | $15,000 | 0.25% / 0.50% |
💡 Pro Tip: Most lenders allow you to buy 0-4 points. Each point typically reduces your rate by 0.25%, but this can vary by lender and market conditions. Always ask for a rate sheet showing 0, 1, 2, and 3 points to compare.
Break-Even Calculator: When Do Points Pay Off?
The break-even point is when your monthly savings equal the upfront cost of points. After that, you're profiting.
📐 Break-Even Formula:
(Cost of Points) ÷ (Monthly Payment Savings) = Months to Break Even
Real Break-Even Example
Scenario: $400,000 loan, 30-year fixed
- Rate without points: 6.75% = $2,594/month
- Rate with 1 point: 6.50% = $2,528/month
- Cost of 1 point: $4,000
- Monthly savings: $66
Break-Even Calculation:
$4,000 ÷ $66 = 60.6 months (5 years)
✅ If you stay 5+ years: You profit $19,760 over 30 years
❌ If you sell in 3 years: You lose $1,624
💰 Calculate YOUR Break-Even Point
Get personalized quotes with exact break-even timelines for your loan amount and credit score:
Get Free Rate Quotes with Points AnalysisDiscount Points vs Origination Points
There are two types of points — and only one is worth paying:
✅ Discount Points (GOOD)
- • Optional fee to lower rate
- • Tax deductible in year paid
- • Permanent rate reduction
- • Worth it if staying 5+ years
- • Typically 0.25% rate drop per point
❌ Origination Points (BAD)
- • Lender fee for processing
- • NOT tax deductible
- • Doesn't lower your rate
- • Negotiate away or switch lenders
- • Pure profit for lender (avoid!)
⚠️ WARNING: Some lenders try to sneak in "origination points" disguised as "processing fees" or "underwriting fees." These are junk fees. Compare lenders with zero origination fees and only pay discount points if the break-even makes sense.
When Are Mortgage Points Worth It?
✅ Buy Points If:
- Staying 5+ years: You'll hit break-even and profit long-term
- High cash reserves: Have 6+ months emergency fund after buying points
- Rates are high: 2026 rates at 6.5-7% = bigger savings from rate reduction
- Forever home: Planning to stay 10-30 years = maximum ROI
- Tax benefits: High income bracket = bigger deduction value
- Stable income: Confident you won't need to refinance soon
❌ DON'T Buy Points If:
- Selling within 5 years: Won't hit break-even = lose money
- Low cash reserves: Need every dollar for emergency fund
- Expecting rate drop: Planning to refinance in 1-2 years
- Starter home: Likely to move/upgrade within 5 years
- Unstable income: May need to sell if job changes
- ARM loan: Rate will adjust anyway (points wasted)
Real-World Examples: 3 Scenarios
Scenario 1: Forever Home (BUY POINTS)
Profile: Sarah, 35, buying forever home
- Loan: $500,000, 30-year fixed
- Rate without points: 6.75%
- Rate with 2 points: 6.25%
- Cost of 2 points: $10,000
- Monthly savings: $165
- Break-even: 60 months (5 years)
Decision: BUY 2 POINTS ✅
Why: Staying 30+ years. After 5-year break-even, saves $49,500 over life of loan. Plus $10K tax deduction in year 1.
Scenario 2: Starter Home (SKIP POINTS)
Profile: Mike & Lisa, 28, first home
- Loan: $300,000, 30-year fixed
- Rate without points: 6.75%
- Rate with 1 point: 6.50%
- Cost of 1 point: $3,000
- Monthly savings: $50
- Break-even: 60 months (5 years)
- Plan: Upgrade to bigger home in 3-4 years
Decision: SKIP POINTS ❌
Why: Likely selling before break-even. If sell in 4 years, lose $600. Better to keep $3K for moving costs or emergency fund.
Scenario 3: Refinance Expected (SKIP POINTS)
Profile: David, 42, expecting rate drop
- Loan: $400,000, 30-year fixed
- Rate without points: 6.75%
- Rate with 1 point: 6.50%
- Cost of 1 point: $4,000
- Monthly savings: $66
- Break-even: 60 months (5 years)
- Plan: Refinance if rates drop to 5.5% (expected 2027)
Decision: SKIP POINTS ⚠️
Why: If refinancing in 2 years, loses $2,416. Better to keep cash and refinance when rates drop. Points only make sense if NOT refinancing.
🎯 Ready to Compare Rates with Points?
Get personalized quotes showing 0, 1, and 2 points options. See your exact break-even timeline and monthly savings.
Tax Deduction Rules for Mortgage Points
Good news: Discount points are tax deductible as mortgage interest. Here's how it works:
Primary Residence (Home Purchase)
- Deduct 100% in year paid if buying primary residence
- Example: Pay $4,000 in points → Deduct full $4,000 on 2026 tax return
- Must itemize deductions (not standard deduction)
- Points must be paid from your own funds (not financed)
Refinance or Investment Property
- Deduct over life of loan (amortized)
- Example: Pay $4,000 in points on 30-year refi → Deduct $133/year for 30 years
- If refinance again or sell, deduct remaining balance in that year
💰 Tax Savings Example:
Pay $4,000 in points, 24% tax bracket = $960 tax savings
Effective cost of points: $4,000 - $960 = $3,040
This improves your break-even timeline by ~15 months!
Frequently Asked Questions
Can I negotiate mortgage points?
Yes! You can negotiate both the number of points and the rate reduction per point. Some lenders offer 0.30% reduction per point vs standard 0.25%. Compare multiple lenders to find the best points deal.
Can seller pay for my points?
Yes! You can negotiate seller concessions to cover discount points. Example: Seller agrees to 3% concessions on $400K home = $12K. Use $4K for points, $8K for other closing costs. You still get the tax deduction. Learn more about seller concessions strategies.
What if I refinance before break-even?
You lose money. If you paid $4K for points and refinance after 3 years (before 5-year break-even), you've only saved $2,376 in payments but spent $4K = $1,624 loss. However, you can deduct the remaining unamortized points in the year you refinance.
Are points worth it with high rates in 2026?
YES — actually MORE worth it! With 2026 rates at 6.5-7%, each 0.25% reduction saves more money than when rates were 3-4%. Example: 0.25% reduction on 6.75% rate = $66/mo savings vs 0.25% on 3.75% = $50/mo. Higher rates = bigger savings from points.
Can I buy points on an ARM?
Technically yes, but NOT recommended. Points only reduce the initial fixed-rate period (typically 5-10 years). After that, rate adjusts anyway. You'll likely never hit break-even. Only buy points on fixed-rate mortgages.
How many points should I buy?
Most buyers choose 0-2 points. Sweet spot is usually 1 point if staying 5-10 years. More than 2 points = break-even extends to 8-10 years (too risky). Get quotes for 0, 1, and 2 points to compare.
Meet David
Refinance & Rate Specialist
David Rodriguez is a seasoned refinancing expert with over 10 years of experience in mortgage rate analysis and market trend forecasting. As a Certified Rate Lock Specialist, he has saved homeowners millions in interest payments through strategic refinancing timing. His expertise in Federal Reserve policy impact and mortgage-backed securities makes him a go-to expert for rate predictions and refinancing strategies.
EXPERTISE:
KEY ACHIEVEMENT:
Saved clients $50M+ in interest payments