Buying down your mortgage rate may be worth it when the monthly savings recover the upfront cost before you sell, refinance or pay off the loan.
The key calculation is the break-even point. It shows how many months you must keep the mortgage for the cumulative principal-and-interest savings to equal the cost of the discount points.
Points may provide value when you expect to keep the loan well beyond break-even and can pay the added closing cost without reducing your emergency savings too far. They may provide little benefit when you expect to move or refinance within a few years.
If your decision is whether to buy now or delay the purchase, see whether you should buy down your rate or wait for rates to drop.
Buying Down Your Mortgage Rate Basics
| Question |
Answer |
What It Means for You |
| How Much Is One Point? |
1% of the loan amount |
One point on a $400,000 mortgage costs $4,000 |
| Does One Point Always Lower the Rate by the Same Amount? |
No |
The reduction depends on the lender, loan, market and rate-lock period |
| What Is the Main Decision Metric? |
The break-even period |
Points may not pay off if you sell or refinance before break-even |
| What Is the Main Benefit? |
A lower mortgage rate |
A lower rate reduces the monthly principal-and-interest payment |
| What Is the Main Tradeoff? |
More cash due at closing |
The upfront cost leaves less cash available for reserves and other expenses |
What Does Buying Down Your Mortgage Rate Mean?
Buying down your mortgage rate generally means paying discount points at closing in exchange for a lower interest rate. One point equals 1% of the loan amount. For example, one point on a $300,000 mortgage costs $3,000.
The rate reduction associated with one point is not fixed. A point does not automatically reduce the rate by 0.25 percentage points. The amount depends on the lender’s pricing, the loan program, market conditions and the length of the rate lock.
Discount points are also different from origination fees. Discount points are tied to a lower rate, while origination fees compensate the lender for services involved in making the loan.
See what mortgage points are and how they work for a more detailed explanation of point pricing and disclosures.
How to Calculate the Break-Even Point
The simple break-even formula is:
Cost of discount points ÷ monthly principal-and-interest savings = months to break even
For example, assume you pay $3,000 in points and the lower rate reduces your monthly principal-and-interest payment by $50.
$3,000 ÷ $50 = 60 months
You would need to keep the mortgage for approximately five years to recover the upfront cost through monthly savings.
| Point Cost |
Monthly Savings |
Simple Break-Even Period |
| $3,000 |
$40 |
75 months |
| $3,000 |
$50 |
60 months |
| $5,000 |
$75 |
About 67 months |
The simple break-even calculation does not account for the potential investment return or interest you could have earned by keeping the cash. It also does not account for possible tax treatment. Those factors can extend the effective break-even period.
Example of How Discount Points Affect a Mortgage Payment
This simplified example compares two hypothetical 30-year fixed-rate options on a $300,000 mortgage. It assumes one point reduces the rate from 6.75% to 6.50%. Actual pricing will vary.
| Loan Option |
Points |
Point Cost |
Interest Rate |
Estimated Monthly Principal and Interest |
| No Points |
0 |
$0 |
6.75% |
About $1,946 |
| One Discount Point |
1 |
$3,000 |
6.50% |
About $1,896 |
In this example, paying $3,000 reduces the principal-and-interest payment by about $50 per month. The simple break-even period is approximately 60 months.
The payment estimates do not include property taxes, homeowners insurance, mortgage insurance or homeowners association fees.
When Buying Down Your Rate May Be Worth It
Paying discount points may make sense when:
- You expect to keep the mortgage longer than the break-even period
- You do not expect to refinance before reaching break-even
- The rate reduction produces meaningful monthly savings
- You have enough cash to pay the points without reducing your reserves too far
- You prefer a lower fixed payment to retaining the upfront cash
- You have compared the point option with a zero-point option using the same loan terms
A break-even period that is comfortably shorter than your expected time in the mortgage provides more room for the points to produce savings.
When Buying Down Your Rate May Not Be Worth It
Paying points may provide limited value when:
- You expect to sell the home before reaching break-even
- You expect to refinance within the next few years
- The points would use most of your emergency savings
- You need the cash for repairs, moving costs or other closing expenses
- The lender offers only a small rate reduction for the cost
- You are already near your maximum cash-to-close budget
- You could use the money to reduce higher-cost debt
Future plans can change, so avoid treating your expected ownership period as certain. Compare the potential savings with the value of retaining the cash.
Points vs. Lender Credits
Discount points and lender credits are opposite mortgage-pricing choices.
With points, you pay more at closing in exchange for a lower rate. With a lender credit, you accept a higher rate in exchange for a credit toward eligible closing costs.
| Option |
Upfront Cost |
Interest Rate |
Potential Use |
| Discount Points |
Higher |
Lower |
You expect to keep the loan beyond break-even |
| Zero-Point Option |
No added point cost |
Based on the lender’s zero-point pricing |
You want to balance the rate and cash needed at closing |
| Lender Credit |
Lower |
Higher |
You want to reduce upfront closing costs and can afford the higher payment |
The CFPB explains how points and lender credits affect upfront costs and interest rates.
Discount Points vs. a Temporary Buydown
Discount points reduce the interest rate for the time you keep the mortgage. A temporary buydown leaves the note rate unchanged and uses deposited funds to subsidize part of the scheduled payment during an introductory period.
| Feature |
Discount Points |
Temporary Buydown |
| Benefit Period |
For the time you keep the mortgage |
A limited introductory period |
| Note Rate |
Reduced |
Does not change |
| Primary Consideration |
Whether you keep the loan beyond break-even |
Whether you can afford the full payment after the subsidy ends |
See how 2-1 and 3-2-1 temporary buydowns work or use the temporary buydown calculator to estimate the payment schedule.
Alternatives to Buying Mortgage Points
Make a Larger Down Payment
A larger down payment reduces the loan balance and may lower the monthly payment. Depending on the loan, it may also affect the interest rate or mortgage insurance costs.
Compare mortgage points vs. a larger down payment before deciding how to allocate your cash.
Keep More Cash After Closing
Choosing a zero-point option preserves cash for emergency savings, repairs, moving expenses and other homeownership costs.
The higher payment may be manageable if retaining liquidity is more valuable than reaching a lower rate.
Choose a Shorter Loan Term
A shorter mortgage term generally has a higher monthly payment but can reduce total interest paid over the life of the loan.
Compare the payment and total interest costs in the guide to a 15-year vs. 30-year mortgage.
Evaluate Refinancing Later
You may be able to refinance if rates fall and you qualify, but a future refinance is not guaranteed. Refinancing also involves new loan terms and potential closing costs.
Do not pay points based on an expectation that you will refinance soon. Selling or refinancing before break-even can prevent you from recovering the point cost.
How to Compare Mortgage Offers With Points
Ask lenders to provide comparable options using the same loan amount, loan type, mortgage term and rate-lock period.
Compare:
- The interest rate
- The annual percentage rate
- The number and dollar cost of discount points
- The monthly principal-and-interest payment
- Any lender credits
- Total cash to close
- The simple break-even period
- How long you expect to keep the mortgage
A lower advertised rate may require more points and a higher upfront cost. Comparing Loan Estimates using matching scenarios helps show the full tradeoff.
The CFPB recommends comparing Loan Estimates from multiple lenders when evaluating mortgage offers.
APR vs. Interest Rate When Paying Points
The interest rate is used to calculate the principal-and-interest payment. The annual percentage rate, or APR, is a broader measure that incorporates the interest rate and certain loan costs.
Paying points lowers the interest rate but increases the upfront cost. APR can help compare offers with different rates and fees, but it does not replace the break-even calculation.
The break-even calculation focuses on how long you must keep the loan to recover the points. APR is based on assumptions about how the mortgage is repaid over time.
Can Seller Credits Pay for Discount Points?
Seller or other interested-party contributions may cover eligible discount points when the loan program and lender permit it.
Contribution limits vary based on the loan type, occupancy, down payment and other transaction details. The lender must confirm that the contribution is permitted and properly documented.
Compare seller-paid points with other possible uses of the contribution, such as eligible closing costs, prepaid expenses or a temporary buydown.
Can You Finance Discount Points Into the Mortgage?
On a home purchase, discount points are generally part of the cash required at closing unless they are covered by an allowable seller contribution, lender credit or assistance source.
On a refinance, eligible closing costs and points may sometimes be included in the new loan balance when the resulting loan meets the applicable loan-to-value, program and lender requirements.
Financing points reduces the cash needed at closing but increases the loan balance and the interest paid on that balance.
Are Mortgage Points Tax-Deductible?
Discount points may be deductible as home mortgage interest when IRS requirements are met. The treatment depends on factors including whether the mortgage is for a purchase or refinance, how the points were paid and whether you itemize deductions.
IRS Publication 936 explains the federal rules for deducting mortgage interest and points. Consult a qualified tax professional about your specific transaction.
The Bottom Line
Buying down your mortgage rate may be worth it when the monthly savings recover the upfront point cost before you expect to sell, refinance or pay off the mortgage.
Calculate the break-even period using the actual cost and payment difference shown in your loan offers. Then compare that period with your expected time in the mortgage and the amount of cash you need to retain after closing.
Points are not automatically a good or bad deal. Their value depends on the lender’s pricing, your financial plans and the alternatives available in the same transaction.
Frequently Asked Questions
How Much Does One Mortgage Point Cost?
One discount point costs 1% of the loan amount. One point on a $400,000 mortgage costs $4,000.
How Much Will One Point Lower My Mortgage Rate?
There is no fixed rate reduction. The amount depends on the lender, loan type, market pricing and rate-lock period. Ask the lender to show the exact point cost, rate reduction and monthly savings.
What Is the Break-Even Point for Mortgage Points?
The break-even point is when the cumulative monthly principal-and-interest savings equal the upfront cost of the points. Divide the point cost by the monthly savings to estimate the number of months.
Should I Buy Points if I May Sell or Refinance Soon?
Points may provide limited value if you expect to sell or refinance before reaching break-even. You would stop receiving the monthly savings before recovering the full upfront cost.
Do Mortgage Points Affect Loan Approval?
Discount points are primarily a pricing choice, but they increase the cash required at closing. The lender must verify that you have enough eligible funds to complete the transaction and meet any applicable reserve requirements.
Can Seller Credits Pay for Mortgage Points?
Seller credits may pay eligible discount points when the loan program and lender permit it. Contribution limits and documentation requirements apply.
Can I Roll Mortgage Points Into My Loan?
Points on a purchase are generally paid through cash to close or an allowed contribution. Points may sometimes be financed into a refinance when the resulting loan meets program and lender requirements.
Are Mortgage Points Tax-Deductible?
They may be deductible when IRS requirements are met. The rules differ based on the loan purpose, how the points were paid and whether you itemize deductions.
What Is the Difference Between Discount Points and Origination Fees?
Discount points are tied to a lower mortgage rate. Origination fees are charges for services involved in making or processing the loan and do not necessarily reduce the rate.
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