Mortgage Points 2026: Should You Buy Down Your Rate? (The Honest Answer)

Mortgage points (also called "discount points") are prepaid interest you pay at closing to permanently reduce your interest rate. Each point costs 1% of the loan amount and typically lowers your rate by 0.20%–0.25%. Example on a $400,000 loan at 6.37%: 1 point = $4,000 upfront → rate drops to ~6.12%. Monthly savings: ~$60. Break-even: 67 months (5.6 years). If you stay 7+ years, points pay off. If you move in 3 years, you lose money. In April 2026, with 30-year rates at 6.37%, many lenders are offering 2-1 buydowns (seller-paid) as an incentive — a temporary rate reduction in years 1-2.

Buying points in 2026 is worth it IF you meet these conditions: 1. You plan to stay in the home for at least 5-7 years. 2. You won't refinance if rates drop (likely in 2026-2027 as the Fed signals cuts). 3. You have excess cash at closing beyond your emergency fund. Points are NOT worth it in 2026 if: You might move within 5 years. You think rates will drop significantly (many economists forecast 5.50-6.00% by end of 2026). You're cash-constrained at closing and stretching for a down payment. The honest verdict: In a falling rate environment (which 2026 increasingly looks like), buying points to lock a rate you'll likely refinance in 18-24 months is a money-losing strategy for most buyers.

Break-even calculation for mortgage points: Step 1: Find your upfront cost. 1 point on $400K loan = $4,000. Step 2: Calculate monthly savings. Rate drops 0.25% (6.37% → 6.12%). Old payment: $2,498/month. New payment: $2,438/month. Monthly savings: $60. Step 3: Break-even = Upfront cost ÷ Monthly savings = $4,000 ÷ $60 = 66.7 months = 5.6 years. If you stay LESS than 5.6 years: you lose money. If you stay MORE than 5.6 years: you profit. For 2 points: Break-even = $8,000 ÷ $120 = 66.7 months same. The break-even for 1 vs 2 points is roughly the same — which means buying more points doesn't change the break-even, it just scales the outcome.

A 2-1 buydown is a temporary rate reduction where: Year 1: Rate is 2% below note rate (if note rate is 6.37%, you pay 4.37%). Year 2: Rate is 1% below note rate (you pay 5.37%). Year 3+: You pay the full note rate (6.37%). Cost: approximately 2-3% of the loan amount, paid upfront into an escrow account. In 2026, sellers frequently offer 2-1 buydowns instead of price cuts to attract buyers. On a $400K loan: Year 1 savings: $520/month. Year 2 savings: $260/month. Total buydown cost: ~$9,400 (typically paid by seller). The gamble: If you don't refinance when year 3 kicks in, your payment jumps significantly. Most buyers use this strategy planning to refinance before year 3.

Yes — mortgage points are generally tax deductible in 2026 for most primary home purchases. IRS rules: Points paid on your primary home purchase are fully deductible in the year paid (if you itemize deductions). Points on a refinance must be deducted over the life of the loan (not all at once). Points on a second home or investment property are also deductible over the loan term. However: Only about 13% of taxpayers itemize in 2026 (since the standard deduction is $14,600/$29,200 for single/married). If you take the standard deduction, the mortgage interest + points deduction provides zero additional benefit. Consult your tax advisor — the deductibility benefit varies significantly by income, state, and total itemized deductions.

In April 2026, here's the strategic framework for buying points: 0 points — best strategy if: You might move or refinance within 5 years, you're cash-tight at closing, or you believe rates will fall 1%+ by 2027. 1 point — consider if: You have strong certainty of staying 7+ years, you have extra cash after 20% down, and your break-even is under 60 months. 2+ points — rarely recommended in 2026 given the high likelihood of refinancing as rates fall. Seller-paid buydown (2-1) — almost always accept if offered — it's free money from the seller that reduces your first two years' payments significantly. Key 2026 context: The Fed signaled 2-3 rate cuts in 2026. Buying permanent points at today's rates to refinance them away in 18 months is burning money.