Should You Pay Mortgage Points? Here's Your Break-Even Month

A discount point costs 1% of your loan amount, paid upfront at closing, in exchange for a reduced interest rate on the loan. On a $320,000 loan, one point costs $3,200. Lenders typically allow buying multiple points, with each one reducing the rate by some amount and adding to the upfront cost, up to whatever maximum the specific loan program permits.

There's no fixed, universal rate reduction per point — it varies by lender and by broader market conditions at the time you're locking your rate. Your lender will quote the specific reduction available for your loan, and it's worth treating that quote as the real number to use rather than any generic figure you've seen referenced elsewhere, since the actual tradeoff differs from one loan offer to the next.

The straightforward version of break-even divides the points' upfront cost by the monthly payment savings the lower rate produces: points cost ÷ monthly savings = break-even month. If $3,200 in points saves $45 a month on your payment, the simple break-even lands a bit past 71 months — just under six years. Stay in the loan longer than that, and the points have paid for themselves on this simple basis.

The simple version ignores what that upfront cash could have earned if invested elsewhere instead of being handed to the lender at closing. A more complete break-even accounts for that opportunity cost — effectively asking how long it takes for the accumulated monthly savings to outpace not just the raw points cost, but that cost growing at whatever rate you'd reasonably expect from investing it instead. This pushes the true break-even point out somewhat further than the simple calculation suggests, since the points money is no longer treated as if it were doing nothing while sitting unspent.

Points tend to make the most sense when you're confident you'll keep the loan well past your calculated break-even point, when the rate environment means even a modest reduction produces meaningful absolute savings on a large loan balance, and when you have the cash available to pay for points without depleting reserves you'd otherwise want for moving costs, furnishing a new home, or an emergency fund.

If there's a real chance you'll sell or refinance before reaching break-even — a job that might relocate you, a starter home you don't expect to keep long-term — points are a real risk of losing money outright. They also make less sense if the cash needed for points would otherwise need to come from a down payment or reserve fund you'd rather keep intact, or if the rate is already historically low enough that the absolute dollar savings from a further reduction are modest relative to the upfront cost.

If rates drop significantly after you've bought points and you decide to refinance into a new, lower rate, the points money you paid is effectively gone — you won't recoup the rest of that break-even period, because you're no longer holding the loan you bought the points for. This is a real risk any time you're paying points in an environment where rates could plausibly fall further during your expected holding period, and it's worth weighing honestly rather than assuming your rate and loan are permanent.

Lenders often present points as a menu — zero points at the base rate, one point for a modest reduction, two points for a larger one — and it's worth running the break-even calculation for each option independently rather than assuming "more points is always better" or "fewer points is always safer." Each additional point typically buys a diminishing rate reduction relative to its cost, which means the second point bought is rarely as good a deal as the first, and the right number of points to buy depends on exactly how confident you are in your expected time in the home.

It's tempting to treat a lower rate as an automatic win, since a smaller number on the loan documents feels better regardless of the upfront cost involved. The break-even calculation exists specifically to cut through that instinct and answer the only question that actually matters financially: given your realistic expected time in the home, does the math favor paying for the lower rate or keeping that cash for something else. Running the numbers, rather than going with whichever option feels more reassuring on paper, is the difference between an informed decision and a guess.