Discount Points: Should You Buy Down Your Rate?

Updated October 2026 · By Jet Ameti, NMLS #757627

“Buy down your rate” sounds like free money — pay a little now, save every month forever. And sometimes it genuinely is a good deal. But points are one of the most oversold features in mortgage lending, because the math only works under specific conditions that salespeople don’t always mention.

What a point actually is

One discount point = 1% of your loan amount, paid at closing, in exchange for a permanent reduction in your interest rate. How much rate reduction you get per point varies by lender and market — there’s no universal exchange rate, which is why you must evaluate each offer on its own numbers. Points are distinct from the lender’s origination fee (their charge for doing the loan) and from temporary buydowns, which expire after a year or two. Points last as long as you keep the loan.

The break-even calculation

This is the entire decision, and it fits in one division problem:

1. Take the upfront cost of the points.
2. Take the monthly payment savings the lower rate gives you.
3. Divide cost by monthly savings = break-even in months.

If you keep the loan past the break-even month, every month after is profit on the trade. If you sell or refinance before it, you lost money — the unrecovered cost doesn’t come back. Run it precisely with the points break-even calculator rather than doing it on a napkin.

When points make sense

• Long hold, high confidence. This is your long-term home, you’re not planning to move, and refinancing isn’t on the near horizon. Break-even in a few years + decades of savings = a good trade.
• You have the cash without hurting reserves. Points are paid from funds that could otherwise be your emergency cushion or earn returns elsewhere. Only buy points with money you can truly spare.
• The pricing is actually good. Compare the cost-per-point across lenders — some lenders sell points cheap, others mark them up heavily. The same “one point” can be a deal from one lender and a rip-off from another.

When points are a waste

• You might move or refinance soon. The average buyer keeps a loan far fewer years than the full term. If there’s a realistic chance you refinance within a few years — say, if rates fall — points bought today get wiped out by tomorrow’s refinance.
• Cash is tight. Money spent on points is money not in your emergency fund. A slightly higher rate with intact reserves beats a lower rate with no cushion.
• The break-even is absurdly long. If the math says eight-plus years to break even, you’re betting heavily on a future you can’t see.

A tax note on points (not tax advice)

Discount points you pay at closing on a purchase loan are generally treated as prepaid interest and may be deductible in the year you pay them — points paid on a refinance are typically deducted gradually over the loan term instead. Tax rules are specific and change, so confirm your situation with a tax advisor rather than counting on the deduction in your break-even math. Treat any tax benefit as a bonus, not the reason to buy points.

Points vs. alternatives for the same cash

Before buying points, ask what else the money could do: a larger down payment (which also lowers the payment and can eliminate PMI sooner), paying down high-interest debt (which improves your DTI), or simply keeping reserves. And remember the mirror image: lender credits let you go the other direction — accept a slightly higher rate and have the lender cover some closing costs. For cash-tight buyers, credits often beat points. Compare all of it on the Loan Estimate, where points and credits show up as explicit line items you can weigh side by side.