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What Are Mortgage Points?
Mortgage points come in two types. Discount points are prepaid interest that reduces your mortgage rate, typically costing 1% of the loan amount per point and reducing the rate by approximately 0.25%. On a $400,000 loan, one point costs $4,000 and might lower your rate from 6.75% to 6.50%, saving about $67/month. Origination points are lender fees for processing the loan and do not reduce your rate. When people discuss buying points, they usually mean discount points.
The key question is the break-even period: how long does it take for the monthly savings to recoup the upfront cost? If one point costs $4,000 and saves $67/month, break-even is 60 months (5 years). If you plan to keep the mortgage longer than 5 years, points save money. If you might refinance or sell sooner, keep your cash. The break-even math becomes more favorable on larger loans because the point cost scales with the loan but the rate reduction applies to the entire balance.
When Buying Points Makes Sense
Points make the most financial sense in three scenarios. You plan to stay long-term: if you are buying your forever home and will keep the mortgage for 15-30 years, the cumulative savings far exceed the point cost. On a $400,000 30-year loan, two points cost $8,000 but save approximately $48,000 in total interest. You have excess cash at closing: if your down payment is already at 20%+ and you have strong reserves, deploying extra cash toward points offers a guaranteed return that often beats conservative investments. Rates are high and expected to stay high: in a persistent high-rate environment, locking in a lower rate through points provides certainty and long-term savings.
Points are usually a poor choice if: you plan to sell within 5 years, you might refinance if rates drop, you need cash for other priorities like emergency reserves or home repairs, or you can use the cash to eliminate PMI by reaching 20% down instead. Use our Refinance Calculator to model different scenarios.
Tax Deductibility of Mortgage Points
Discount points are generally tax-deductible as prepaid mortgage interest. For a home purchase, points are typically deductible in the year paid. For a refinance, points must be amortized over the life of the loan. On a 30-year refinance, one point of $4,000 provides a $133/year deduction for 30 years. The deduction only benefits you if you itemize deductions rather than taking the standard deduction. With the standard deduction at $14,600 for single filers and $29,200 for married filing jointly in 2026, many homeowners find itemizing is not beneficial unless their total deductions including state taxes, mortgage interest, and charitable contributions exceed these thresholds.