One discount point costs 1% of your loan amount and typically buys a 0.125%–0.25% rate reduction. At current rates, a single point on a $400,000 mortgage breaks even in about five years — but only if you don’t refinance or sell first.
A mortgage discount point costs 1% of the loan amount and typically reduces your interest rate by 0.125% to 0.25%. Break-even — the month when accumulated monthly savings equal the upfront cost — runs about 5 years at current rates on a $400,000 loan. Pay points only if you plan to keep the loan past that threshold.
Freddie Mac's weekly survey put the 30-year fixed mortgage rate at 6.55% — the highest level since August 2025. That environment puts one practical question front of mind for buyers and refinancers: is there any way to lower that rate? Discount points are one answer. Whether they’re the *right* answer depends on math, not marketing.
A discount point is a one-time upfront fee paid at closing that reduces your mortgage’s interest rate. One point equals 1% of the loan amount — $4,000 on a $400,000 mortgage.
According to the Consumer Financial Protection Bureau, each discount point typically reduces your rate by 0.125% to 0.25%, though the exact reduction varies by lender and market conditions. That range matters: a lender offering only 0.125% per point requires twice as many points to achieve the same rate reduction as one offering 0.25%. Always get both scenarios in writing on the same Loan Estimate before committing.
Discount points vs. origination points: not the same thing. Origination points are the lender’s compensation for processing the loan — they do not reduce your rate. Discount points are prepaid interest that reduces your rate. Both appear on your Loan Estimate under Section A. Separate them before comparing offers across lenders.
Every decision about buying points comes down to one number: the break-even period.
Break-even = upfront point cost ÷ monthly payment reduction
At current rates, here’s how it works on a $400,000 loan:
If you keep this loan for more than 5.2 years without refinancing, buying the point saves money overall. If you sell, move, or refinance before then, you paid extra upfront and never recovered it.
At a lender offering only 0.125% per point, the math shifts sharply: monthly savings drop to ~$32, and break-even extends to about 125 months (10+ years) — a far harder case to make. The per-point rate reduction a lender offers is the single most important variable in this analysis.
Long-term homeowners. If you plan to keep this mortgage for 10, 15, or 20 years, buying points is typically worth it at any reasonable per-point cost. Every month past break-even is savings you wouldn’t otherwise have. On a 30-year loan with a 62-month break-even, holding to maturity accumulates more than $30,000 in total payment savings.
High-rate environments where refinancing is unlikely. When rates are elevated and a lower-rate refinance opportunity is unlikely to appear, you’ll hold the loan longer without prepaying it. That extended holding period increases the probability of passing break-even by a wide margin.
Larger loan amounts. Break-even period stays proportionally consistent, but the absolute monthly savings are larger on bigger loans. On a $600,000 loan with the same 0.25% rate reduction, one point costs $6,000 but saves ~$96/month — the break-even still runs about 62 months, but each year after that saves nearly $1,150 in payments.
Cash available at closing. If you have excess cash beyond the down payment and required reserves, paying points is a low-risk use of that capital — effectively a guaranteed return on the spread between your mortgage rate and the after-tax cost of the points.
Short planned holding period. If you expect to sell or move within three to five years, the probability of never reaching break-even is real. Keep the cash at closing.
Likely refinance ahead. If rates are expected to fall and you’d refinance, you may pay off the loan before recovering the point cost. Each refinance resets the clock.
Cash needed elsewhere at closing. Paying points competes with your down payment. Boosting a down payment from 17% to 20% eliminates private mortgage insurance (PMI), which can save as much per month as buying down the rate — and without a break-even waiting period. Run both scenarios before deciding.
For a home purchase, discount points are generally fully deductible in the year paid, per IRS Publication 936. To qualify, the points must represent prepaid interest (most discount points do), must be calculated as a percentage of the loan amount, and the loan must be used to buy, build, or substantially improve your main home.
In practical terms: if you’re in the 22% federal bracket and pay $4,000 in points on a purchase, the after-tax cost drops to approximately $3,120. That shortens break-even by roughly 12–14 months — meaningful for borderline cases.
For refinance mortgages, the deduction is typically spread over the life of the loan rather than taken in the year paid. Consult a tax professional to confirm eligibility before relying on the deduction in your projections.
Lender credits work in reverse. Instead of paying upfront to get a lower rate, you accept a slightly higher rate and receive a credit toward closing costs. The CFPB describes lender credits as the other end of the rate/cost tradeoff curve.
If you’re short on closing-cost cash but can handle a modestly higher monthly payment, a lender credit can make sense — especially when you plan a shorter holding period. The break-even logic runs in reverse: you’re accepting a higher ongoing cost in exchange for immediate cash relief at closing.
Lenders combine rate and upfront costs differently to compete. To compare cleanly:
1. Get Loan Estimates on the same day from multiple lenders — rates shift daily. See our best mortgage lenders for 2026 for a shortlist of lenders worth requesting estimates from. 2. Ask each lender for two scenarios: a no-points quote and a one-point quote. 3. Calculate the break-even for each option using the formula above. 4. Compare APR, not just rate. The annual percentage rate incorporates points and other fees in a standardized way. See the CFPB’s APR explainer for the methodology. For refinancing, our best mortgage refinance lenders comparison covers current rate structures.
Discount points are a tool, not a default. They deliver real value when you plan to hold the loan past break-even. They’re a sunk cost when you don’t.
There’s no federally mandated cap, but most lenders limit discount point purchases to 2–4 points. Each point costs 1% of the loan amount. Buying four points on a $400,000 loan costs $16,000 upfront. Always run the full break-even analysis before committing to multiple points — the savings may not justify the cost over your expected holding period.
Possibly — but the answer turns on your holding period, not the rate level alone. In a high-rate environment, buying points locks in a lower rate for as long as you hold the loan. However, if rates fall materially and you refinance, you lose the unrecovered portion of the upfront cost. Calculate your break-even and compare it honestly to how long you expect to hold the loan before refinancing.
No. Discount points are a closing cost paid at settlement and cannot be added to the loan balance on a standard purchase or rate-and-term refinance. On some cash-out refinances a lender may allow it, but rolling points into the balance means you’re paying interest on those points over the life of the loan, which significantly extends the true break-even.
Origination points (also called origination fees) are the lender’s compensation for processing your loan — they do not reduce your rate. Discount points are prepaid interest that reduces your rate. Both appear on your Loan Estimate under Section A. Ask your lender to separate them clearly so you know exactly what each dollar is buying.
For a refinance, points are generally not fully deductible in the year paid. Instead, the deduction must be spread (amortized) over the life of the loan. If you pay off the mortgage or refinance again before the loan matures, you can deduct the remaining unamortized points in that year. See IRS Publication 936 or consult a tax professional for your specific situation.