Quick Answer
Buying discount points trades cash at closing for a lower interest rate and, in turn, a lower monthly payment. Whether it's worth it comes down to how long you plan to keep the loan, since the upfront cost needs time to pay for itself.
- Typical cost
- About 1% of the loan amount per point
- Typical benefit
- A modest reduction in your interest rate per point
- Break-even
- Months to years, depending on the rate reduction
- Best fit
- Buyers planning to keep the loan long-term
How Points Lower Your Rate
Each discount point you purchase generally costs about 1% of your loan amount and buys down your interest rate by a modest amount, though the exact reduction varies by lender and market conditions. Points are itemized on your loan estimate so you can see the cost and rate side by side.
You can typically buy a fraction of a point, a full point, or several points, depending on how much upfront cost you're willing to trade for a lower rate.
Calculating Your Break-Even Point
The key question with discount points is how long it takes the monthly savings to recover the upfront cost, known as the break-even point. If you plan to keep the loan well past that point, paying points can save real money over the life of the loan.
If you expect to sell or refinance within just a few years, the upfront cost of points often doesn't have enough time to pay off, so a lender-provided comparison is worth reviewing carefully.
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Frequently Asked Questions — Discount points
Are discount points tax-deductible?
They may be deductible as mortgage interest in the year paid, but tax treatment depends on your situation, so check with a tax professional.
Is buying points the same as an origination fee?
No, origination fees cover the lender's cost of processing your loan, while discount points are optional and specifically buy down your rate.
How many points can I buy?
It varies by lender and loan program, but many allow you to buy a fraction of a point up to several points.
Do points make sense for every buyer?
No, they generally benefit buyers who plan to keep the loan long enough to pass the break-even point; shorter-term owners often skip them.