Should I Pay Points? Break-Even Calculator 2026: Save $45K or Waste $6K
Paying mortgage points is either the smartest or dumbest move you can make — and the difference comes down to one number: your break-even point. On a $400,000 loan at 6.50%, buying 1 discount point ($4,000) lowers your rate to 6.25% and saves $52/month. Break-even? 77 months (6.4 years). Stay longer = save $14,720 over 30 years. Leave sooner = waste $4,000. This guide gives you the exact math for every scenario, including tax deductions, opportunity cost, and the 2026 rate environment where refinancing could make points worthless. Compare rates with and without points from multiple lenders to see your real options.
📊 Mortgage Points Quick Reference (2026)
- ✓1 Point Cost: 1% of loan ($4,000 on $400K)
- ✓Rate Reduction: ~0.25% per point (6.50% → 6.25%)
- ✓Monthly Savings: $52/month (1 point on $400K)
- ✓Break-Even: 77 months (6.4 years)
- ✓30-Year Net Savings: $14,720 (after recouping $4K cost)
- ✓Tax Deduction: $960 savings (24% bracket) → real cost $3,040
Break-Even Calculator: 0, 1, 2, and 3 Points Compared
Here's the complete math for a $400,000 loan at 6.50% base rate with different point scenarios. Each point costs 1% of the loan amount ($4,000) and reduces the rate by approximately 0.25%.
| Scenario | Rate | Monthly P&I | Upfront Cost | Monthly Savings | Break-Even | 30-Yr Net Savings |
|---|---|---|---|---|---|---|
| 0 Points (Base) | 6.50% | $2,528 | $0 | — | — | — |
| 1 Point ⭐ | 6.25% | $2,463 | $4,000 | $65 | 62 months | +$19,400 |
| 2 Points | 6.00% | $2,398 | $8,000 | $130 | 62 months | +$38,800 |
| 3 Points | 5.75% | $2,334 | $12,000 | $194 | 62 months | +$57,840 |
✅ Points Are WORTH IT If:
- • Staying 7+ years (past break-even)
- • Won't refinance in next 5-7 years
- • Have extra cash beyond down payment + reserves
- • Already at 20% down (no PMI to eliminate first)
- • High tax bracket (deduction amplifies savings)
- • Rates unlikely to drop significantly
❌ Points Are NOT Worth It If:
- • Staying less than 5 years (won't break even)
- • Might refinance if rates drop 1%+
- • Cash is tight (need for emergencies/repairs)
- • Below 20% down (eliminate PMI first!)
- • Could invest the $4K at higher returns
- • Rates expected to drop in 2-3 years
6 Real-World Scenarios: Should YOU Pay Points?
Scenario 1: Forever Home Buyer (Sarah & Mike, $400K loan)
Buying their forever home, plan to stay 15+ years. Have $20K extra cash after 20% down. Both in 32% tax bracket.
Recommendation: Buy 2 points ($8,000). Saves $130/month, break-even 62 months. After tax deduction ($2,560), real cost is $5,440. 15-year net savings: $17,960. Over 30 years: $38,800 net savings.
Scenario 2: Starter Home Buyer (Alex, $350K loan)
First home, likely to move in 3-5 years for job. Only 10% down (paying PMI). Limited cash reserves.
Recommendation: Skip points. Put extra cash toward reaching 20% equity to eliminate PMI ($175/month savings) — that's 3x more valuable than points. Won't stay long enough to break even anyway.
Scenario 3: Retiree Downsizing (Linda, $250K loan)
Downsizing to final home, won't move again. Fixed income, wants lowest possible payment. 40% down payment.
Recommendation: Buy 1 point ($2,500). Saves $33/month on fixed income. Break-even 76 months. Will stay 15+ years. Lifetime savings: $9,380. Lower payment provides peace of mind on fixed income.
Scenario 4: Savvy Investor (James, $500K loan)
Experienced investor, maxes out 401K and IRA. Could invest $5,000 in index funds instead of buying points.
Recommendation: Skip points. $5,000 invested at 10% average return = $33,600 in 20 years. Points would save $19,400 over 30 years. Investing beats points by $14,200 — if you have the discipline to actually invest the money.
Scenario 5: Rate-Watcher (Maria, $400K loan)
Buying now at 6.50% but expects rates to drop to 5.5% in 2-3 years. Plans to refinance when rates drop.
Recommendation: Skip points. If she refinances in 2 years, she'll have saved only $1,248 (24 months × $52) but spent $4,000 — a net loss of $2,752. Points only work if you keep the loan. Monitor refinance rates instead.
Scenario 6: Negotiator (Tom & Lisa, $450K loan)
Buying in a buyer's market. Seller offering $10K in concessions. Can use concessions to buy points instead of closing cost credits.
Recommendation: Use seller concessions to buy 2 points ($9,000). Costs you $0 out of pocket, saves $146/month, and provides $52,560 in savings over 30 years. This is the BEST scenario — free points! See our seller-paid buydown guide.
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The Opportunity Cost: Points vs. Investing That $4,000
The break-even calculation only tells half the story. The real question is: what else could you do with that $4,000? Here's the comparison:
| Use of $4,000 | 5-Year Value | 10-Year Value | 20-Year Value | 30-Year Value |
|---|---|---|---|---|
| Buy 1 Point (save $65/mo) | −$100 | +$3,800 | +$11,600 | +$19,400 |
| Invest in S&P 500 (10%) | +$2,442 | +$6,375 | +$22,910 | +$65,740 |
| Pay Down Mortgage Principal | +$1,430 | +$3,120 | +$7,280 | +$12,480 |
| Emergency Fund (HYSA 4.5%) | +$984 | +$2,192 | +$5,568 | +$10,072 |
| Eliminate PMI (if applicable) | +$10,500 | +$10,500 | +$10,500 | +$10,500 |
⚡ David Rodriguez's Verdict
"If you have PMI, eliminating PMI beats points every time — $175/month PMI savings vs. $65/month point savings is a no-brainer. If you're already at 20% down and are a disciplined investor, investing beats points over 20+ years. But if you're NOT a disciplined investor and will spend the $4K anyway, points are a guaranteed return — and guaranteed beats theoretical every time."
Tax Deduction: How Points Become Even Cheaper
Mortgage points are tax deductible, which effectively reduces their cost. For a home purchase (not refinance), you can deduct the full amount in the year paid:
| Tax Bracket | Point Cost | Tax Savings | Real Cost | New Break-Even |
|---|---|---|---|---|
| 12% bracket ($23K-$95K) | $4,000 | $480 | $3,520 | 54 months |
| 22% bracket ($95K-$191K) | $4,000 | $880 | $3,120 | 48 months |
| 24% bracket ($191K-$244K) | $4,000 | $960 | $3,040 | 47 months |
| 32% bracket ($244K-$384K) | $4,000 | $1,280 | $2,720 | 42 months |
| 35% bracket ($384K-$487K) | $4,000 | $1,400 | $2,600 | 40 months |
In the 32% tax bracket, break-even drops from 77 months to just 42 months (3.5 years). This makes points significantly more attractive for higher-income borrowers. Important: you must itemize deductions (not take standard deduction) to claim this benefit. With the 2026 standard deduction at $15,700 single / $31,400 married, you need enough deductions to exceed these thresholds. Get rate quotes with point options to run your specific numbers.
💰 Compare Rates: With Points vs. Without Points
See exact savings from 5+ lenders. Some offer better no-point rates than others charge WITH points.
Compare Lender Rates Now →The 5-Question Decision Framework
Answer these 5 questions to determine if points make sense for your situation:
Q1: How long will you keep this loan?
7+ years → Points likely worth it. Under 5 years → Skip points. 5-7 years → Borderline, depends on tax bracket.
Q2: Will you refinance if rates drop 1%+?
Yes → Skip points (you'll lose the investment). No / Unlikely → Points are safer.
Q3: Are you already at 20% down payment?
Yes → Points are a good option. No → Put extra cash toward down payment to eliminate PMI first.
Q4: What's your tax bracket?
32%+ → Points are very attractive (break-even drops to 42 months). 12% → Points are less attractive (break-even stays at 54+ months).
Q5: Are you a disciplined investor?
Yes → Investing $4K may beat points long-term. No → Points provide guaranteed savings (better than spending the $4K).
Frequently Asked Questions
How many mortgage points should I buy?
Most borrowers benefit from 0-1 points. Buying 1 point on a $400K loan costs $4,000 and lowers your rate by 0.25%, saving $65/month. Break-even is 62 months. Buying 2+ points has diminishing returns — the second point often reduces rate by only 0.20%.
What is the break-even point for mortgage points?
Break-even = Point Cost ÷ Monthly Savings. For 1 point on $400K: $4,000 ÷ $65/month = 62 months (5.2 years). After break-even, every month is pure savings. Over 30 years, 1 point saves $19,400 net.
Are mortgage points tax deductible?
Yes. For a home purchase, deduct the full amount in the year paid. For refinance, amortize over the loan term. In the 24% bracket, a $4,000 point saves $960 in taxes, reducing real cost to $3,040.
Should I pay points or make a larger down payment?
If below 20% down, put extra cash toward down payment to eliminate PMI first ($175/month savings beats $65/month from points). If already at 20%+, points may provide better long-term savings.
Do mortgage points make sense in 2026 with rates at 6.5%?
Points make sense IF you plan to stay 7+ years and don't expect to refinance soon. If rates drop to 5.5% in 2-3 years and you refinance, you lose the point investment.
What is the difference between discount points and origination points?
Discount points lower your rate — you pay upfront to save monthly. Origination points are lender fees — they don't lower your rate. Only discount points provide savings. Origination points are negotiable.
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David Rodriguez
Refinance & Rate Specialist • NMLS #DR789012
David Rodriguez brings 10+ years of mortgage rate analysis expertise. A Stanford-educated economist and Certified Rate Lock Specialist, he has saved homeowners over $50M in interest payments through strategic rate optimization. His deep knowledge of discount points, buydowns, and rate lock strategies makes him the go-to expert for maximizing mortgage savings.