The short answer: mortgage points are worth it only if you keep the loan longer than the break-even point, when your interest savings have paid back what you spent on the points. The CFPB's advice is to ask a lender for two options, with and without points, and to compare the total cost over three lengths of time: the shortest, the longest and the most likely time you can see yourself keeping the loan.
What mortgage points are
A discount point is a one-time fee you pay at closing to get a lower interest rate. One point equals one percent of the loan amount, so one point on a $320,000 loan costs $3,200. Points do not have to be whole numbers: you can pay 0.5 points or 1.375 points. The rate cut a point buys depends on the lender, the kind of loan and the market, so always ask.
Lender credits work the other way. You accept a higher interest rate, and the lender pays part of your closing costs. On a lender's worksheet a credit may be called "negative points". Points show on your Loan Estimate on page 2, Section A, and lender credits show as a negative number in Section J. Our guide to reading a Loan Estimate explains where to find them.
The break-even test, worked by hand
Take a $320,000 30-year loan from one lender at two prices: 6.75% with no points, or 6.25% for one point ($3,200). Both have the same $3,000 in other fees. The rates are examples, not quotes.
| 6.75%, no points | 6.25%, one point | |
|---|---|---|
| Monthly payment (principal and interest) | $2,075.51 | $1,970.30 |
| Paid at closing for points | $0 | $3,200 |
| Interest paid in 5 years | $104,933 | $96,897 |
| Cost of borrowing at 5 years (points + fees + interest) | $107,933 | $103,097 |
- The lower rate saves $105.22 a month in payment.
- The quick rule of thumb divides the cost of the points by that saving: $3,200 ÷ $105.22 = 30.4 months.
- The more exact test counts interest month by month. In the first month the lower rate saves $133.33 in interest, more than the payment saving, because the lower-rate loan also repays a little more principal. Counting that, the points pay for themselves after month 24 (2 years).
- Keep the loan 5 years and you are ahead by $4,836. Keep it 10 years and you are ahead by $12,829. Sell in year 2, and you have lost money on the points.
Try your own quotes in the loan offer comparison calculator. It also shows, for up to three offers, which one is cheapest for every length of time you might keep the loan.
How big does the rate cut need to be?
Lenders differ in how much a point lowers the rate, so the useful question is what a point has to buy. Using the same $320,000 loan at 6.75% with no points, here is the smallest rate cut that makes one point ($3,200) pay for itself by the time you sell or refinance (searched in steps of 0.0625 percentage points):
| You keep the loan for | One point must lower the rate by at least |
|---|---|
| 3 years | 0.375 percentage points |
| 5 years | 0.25 percentage points |
| 7 years | 0.1875 percentage points |
| 10 years | 0.125 percentage points |
The longer you stay, the smaller the cut you need. If a lender's point lowers your rate by less than the cut in the row that matches your plans, the point does not pay off in time. If it lowers the rate by more, it does. This is the "what would have to be true" question, and only you know the years.
Points or lender credits?
- Points fit you if you are confident you will keep the loan a long time and you have cash left after the down payment and closing costs.
- Lender credits fit you if you are short of cash now, or you expect to sell or refinance soon, so you would not keep the higher rate for long.
- If you are unsure, the CFPB says that when you do not know how long you will stay or when you might refinance, and you have enough cash for closing and savings, you might not want to pay points or take a higher rate for credits.
A "no closing cost" loan is a lender credit that cancels your fees. It is not free: you pay for it through the rate. See the comparison calculator for a worked example.
Do points save taxes?
Points are a form of prepaid interest, and some can be deducted. According to the IRS, if you itemize deductions you can generally deduct points paid to buy your principal residence in the year you pay them when you meet its conditions, including that the points are a percentage of the loan and clearly shown on your settlement statement, and that you provide funds at or before closing at least equal to the points. Points on a refinance or a second home are generally deducted ratably over the loan term. A deduction only helps if your itemized deductions exceed the standard deduction, so do not count on it to make a poor deal good. Confirm with a tax professional and IRS Publication 936.
Questions to ask your lender about points
- What is my rate with no points, and what is it with one point, both quoted today?
- How much of a rate cut do I get for each point at different levels (0.5, 1, 2 points)?
- Are any "points" on this estimate fees that do not lower my rate?
- Can I have the same loan with a lender credit instead, and at what rate?
- Can you show me the total cost over a short, a likely and a long period?
More questions are in questions to ask a mortgage lender, and the whole buying sequence is in the first-time home buyer guide.
Sources
Definitions and advice on points and lender credits follow the CFPB's How should I use lender credits and points? and its Compare and negotiate your loan offers page. Tax rules are from IRS Topic 504, Home mortgage points. The rates and prices in our examples are illustrations, and every number is computed by the same tested formulas as our calculators. Last reviewed September 2026. This is general information, not tax, legal or financial advice.