Mortgage
Mortgage Points Explained: Are They Worth It?
When closing on a home, your lender may offer you the option to pay "points" to lower your interest rate. But is it actually worth paying more upfront?
What Are Mortgage Points?
One discount point equals 1% of the loan amount. Paying one point typically lowers your interest rate by about 0.25%, though this varies by lender.
On a $300,000 loan, 1 point costs $3,000 and might reduce your rate from 6.75% to 6.50%.
Calculating the Break-Even Point
The key question: how long will it take to recoup the upfront cost through lower monthly payments?
- Cost of 1 point: $3,000
- Monthly savings from lower rate: ~$50/month
- Break-even: $3,000 ÷ $50 = 60 months (5 years)
If you plan to stay in the home longer than 5 years, buying the point is mathematically beneficial.
When to Buy Points
- You plan to stay in the home for 7+ years
- You have extra cash at closing
- You want to reduce your monthly payment
- Rates are high and you want to lock in a lower rate
When to Skip Points
- You plan to sell or refinance within 5 years
- You need the cash for home improvements or emergency fund
- Rates are expected to drop (you may refinance anyway)
See How Points Affect Your Payment
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