Are Mortgage Points Worth Buying?
Buying a point costs $3,200 on a $320,000 loan and saves you $52.32 a month. Divide one by the other and you get the only number that matters: 61 months. Keep the loan past five years and you win. Move or refinance before then and you simply paid $3,200 for nothing.
One number decides this
Points are simple, despite how they are presented. You pay money up front, and in exchange your rate drops for the life of the loan.
So the only real question is: how long before the smaller payments give you your money back?
On a $320,000 loan at 6.5% over 30 years, buying one point, from the mortgage points calculator:
| Figure | |
|---|---|
| Cost of one point | $3,200 |
| Rate before | 6.5% |
| Rate after | 6.25% |
| Payment before | $2,022.62 |
| Payment after | $1,970.30 |
| Monthly saving | $52.32 |
| Break-even | 61 months |
Just over five years. Keep the loan longer and the point was worth buying. End the loan sooner - by moving, refinancing, or paying it off - and you spent $3,200 for a benefit you never collected.
The number lenders prefer to quote
The same point produces a lifetime saving of $15,636.
That is a genuinely impressive figure and it is the one you will hear. It is also the one that quietly assumes you keep this exact loan for the full thirty years without moving once, without ever refinancing, and without paying it off early.
The break-even is the more honest number because it makes no assumption at all. It just asks: how long until you are ahead?
Both are true. Only one of them survives contact with an ordinary life.
Why five years is a genuine problem
Mortgages end early far more often than people expect when they sign. Jobs move. Families grow. Rates fall and refinancing becomes obvious. Any of those ends the loan and stops the point paying out.
If your break-even is 61 months, you are betting that none of that happens for over five years. Some people can say that confidently. Many cannot, and the honest answer is often “I do not know”.
If you do not know, that uncertainty is itself an argument against paying up front for a long-dated benefit.
When points are worth it
You are confident you are staying. A home you plan to be in for a decade or more changes the arithmetic completely.
Rates are already high. If today’s rate is historically high, a future refinance is more likely - which argues against points. If today’s rate is low, there is less reason to expect you will refinance away from it, so the point is more likely to run its course.
Someone else is paying. Sellers and builders sometimes offer to buy points as an incentive. If it is not your $3,200, the break-even does not apply to you. Take it.
You have money spare after the deposit and emergency fund. Points come out of the same pot as your down payment. Spending $3,200 on a point instead of putting it toward the deposit is a real trade - a bigger deposit might get you out of mortgage insurance sooner, which can be worth more.
When to say no
- You might move within about five years
- You are stretching to afford the deposit as it is
- The rate is high enough that refinancing later looks likely
- You have no emergency fund yet - that matters more than a quarter point
The check to run
- Ask for the cost and the exact rate reduction. Not “about a quarter”. the actual figures.
- Work out the break-even in months. Cost ÷ monthly saving.
- Ask yourself honestly how long you will keep this loan. Not the term - how long you will keep it.
- If the answer is shorter than the break-even, decline. It really is that simple.
Put your own loan into the mortgage points calculator - it leads with the break-even rather than the lifetime saving, because that is the number that decides it.
Common questions about mortgage points
What is a mortgage point?
A fee paid up front to lower your interest rate. One point costs 1% of the loan - $3,200 on a $320,000 mortgage - and typically cuts the rate by around a quarter of a percent. You are pre-paying interest to get a lower rate for the life of the loan.
How do I know if points are worth it?
Work out the break-even: the cost divided by the monthly saving. $3,200 divided by $52.32 is 61 months, or just over five years. If you will keep the loan longer than that, you win. If not, you have paid for a benefit you never collected.
How long do people actually keep a mortgage?
Often far less than the full term - moving, refinancing, or paying it off early all end it. That is the honest problem with points: the break-even is usually measured in years, and plenty of loans do not survive that long.
Is the lifetime saving the number to look at?
Only if you will genuinely keep the loan to the end. On this example the lifetime saving is $15,636 - an impressive figure that assumes 30 years of never moving and never refinancing. The break-even is the more honest number because it does not require that assumption.
Are points ever clearly a good idea?
When you are confident about staying, when rates are high enough that a refinance later looks unlikely, or when a seller or builder is paying for them. If someone else is buying the point, the break-even is irrelevant and you should take it.