Are Mortgage Points Worth It in 2026? Complete Cost-Benefit Analysis
💰 Should You Buy Mortgage Points?
Points are worth it if you stay in the home longer than the break-even period. On a $400K loan at 6.50%, buying 1 point ($4,000) lowers your rate to 6.25%, saving $60/month. You break even in 67 months (5.6 years). If you stay 30 years, you save $17,600 total. Compare rates with and without points →
Are mortgage points worth it? It depends on how long you'll stay in the home. Mortgage points (also called discount points) let you pay upfront to lower your interest rate—typically 1 point (1% of loan amount) reduces your rate by 0.25%. Points are worth it if you stay past the break-even point (usually 4-7 years). This guide shows the real math, break-even calculator, and when points make sense vs when they don't.
💡 What Are Mortgage Points?
The Basics:
- •1 point = 1% of your loan amount (e.g., $4,000 on a $400K loan)
- •Each point typically lowers your rate by 0.25% (varies by lender)
- •Paid at closing as part of your closing costs
- •Tax deductible in the year you buy the home (consult tax advisor)
- •Permanent rate reduction for the life of the loan
📊 Real Example: $400K Loan
| Scenario | Points Cost | Interest Rate | Monthly Payment | Total Interest |
|---|---|---|---|---|
| No Points | $0 | 6.50% | $2,528 | $510,080 |
| 1 Point | -$4,000 | 6.25% | $2,462 | $486,320 |
| 2 Points | -$8,000 | 6.00% | $2,398 | $463,280 |
💰 Savings with 1 point: $66/month × 360 months = $23,760 - $4,000 cost = $19,760 net savings
🧮 Break-Even Calculator: When Do Points Pay Off?
Break-Even Formula
Break-Even Months = Points Cost ÷ Monthly Savings
Example: $400K loan, 1 point
- • Points cost: $4,000
- • Rate reduction: 6.50% → 6.25%
- • Monthly savings: $2,528 - $2,462 = $66
- • Break-even: $4,000 ÷ $66 = 61 months (5.1 years)
✅ If you stay longer than 5.1 years, points are worth it!
| Loan Amount | 1 Point Cost | Monthly Savings | Break-Even | 30-Year Savings |
|---|---|---|---|---|
| $200,000 | $2,000 | $33/mo | 61 months | +$9,880 |
| $300,000 | $3,000 | $50/mo | 60 months | +$15,000 |
| $400,000 | $4,000 | $66/mo | 61 months | +$19,760 |
| $500,000 | $5,000 | $83/mo | 60 months | +$24,880 |
| $750,000 | $7,500 | $124/mo | 60 months | +$37,140 |
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Compare Rates Now →✅ When Points ARE Worth It
1. Long-Term Ownership
You plan to stay 7+ years
If you're buying your "forever home" or plan to stay past the break-even point (typically 5-6 years), points will save you thousands in interest.
2. High Cash Reserves
You have extra cash after 20% down
If you have cash left over after your down payment and emergency fund, buying points is a guaranteed return on investment (vs stock market uncertainty).
3. High Interest Rate Environment
Rates are above 6%
When rates are high (like 2026), the monthly savings from buying points are larger, so you break even faster and save more over the loan term.
4. Tax Benefits
You itemize deductions
Points are tax-deductible in the year you buy (for primary residence). If you're in a high tax bracket, this reduces the effective cost of buying points.
❌ When Points Are NOT Worth It
1. Short-Term Ownership
You'll move or refinance in 3-5 years
If you won't stay past the break-even point, you'll lose money. Example: Buying 1 point for $4,000 but moving after 3 years = you only saved $2,376 ($66/mo × 36 months) = -$1,624 loss.
2. Low Cash Reserves
You need cash for down payment or emergencies
Don't buy points if it means putting down less than 20% (you'll pay PMI) or depleting your emergency fund. Keep 6 months expenses in cash.
3. Expecting to Refinance
Rates might drop in 1-2 years
If you think rates will fall and you'll refinance soon, don't buy points now. You'll lose the upfront cost when you refinance to a new loan.
4. Better Investment Opportunities
You can earn more than 5-6% elsewhere
If you can invest the $4,000 and earn 8-10% in the stock market (vs 5-6% effective return from points), you might be better off investing instead.
🎯 Decision Framework: Should YOU Buy Points?
Ask Yourself These 5 Questions:
1. How long will you stay in the home?
- • Less than 5 years: Don't buy points
- • 5-7 years: Maybe (calculate break-even)
- • 7+ years: Yes, buy points
2. Do you have extra cash after 20% down?
- • No: Don't buy points (keep cash for emergencies)
- • Yes, but tight: Maybe buy 0.5-1 point
- • Yes, plenty: Consider buying 1-2 points
3. What's the current rate environment?
- • Rates below 5%: Points less valuable (smaller savings)
- • Rates 5-6%: Points moderately valuable
- • Rates above 6%: Points very valuable (larger savings)
4. Will you refinance soon?
- • Yes, within 2-3 years: Don't buy points (you'll lose them)
- • Maybe in 5+ years: Points still worth it
- • No plans to refinance: Definitely buy points
5. Do you itemize tax deductions?
- • Yes: Points are tax-deductible (extra benefit)
- • No (standard deduction): Still worth it if break-even works
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