“Should I buy points to lower my rate?”
That’s the question I get more than almost any other. And my answer is always the same: “It depends. But probably not.”
Let me explain what points actually are, how to calculate whether they’re worth it, and why most homeowners are better off skipping them.
I’ll use a real client example—a guy named Carlos who almost wasted $3,600.
What Are Mortgage Points, Really?
A mortgage point is a fee you pay upfront to lower your interest rate. One point costs 1% of your loan amount. On a $300,000 loan, one point costs $3,000. In exchange, your rate typically drops by 0.25%.
Sometimes you can buy fractional points—0.5 points for a 0.125% rate drop, etc. The exact amount varies by lender and market conditions.
Sounds simple. But here’s where it gets tricky.
The Carlos Story: Almost Paid $3,600 for Nothing
Carlos was refinancing a $240,000 loan. His base offer was 6.5% with no points. The loan officer offered him 6.0% for 1.5 points ($3,600). Carlos was excited. “I’ll save $80 a month!” he said.
I asked him, “How long do you plan to stay in the house?”
“Probably 3 more years,” he said. “Then I’m moving to a smaller place.”
Let’s do the math. $3,600 upfront ÷ $80 monthly savings = 45 months to break even. He was only staying 36 months. He would lose money by buying points.
He didn’t buy them. Good call.
If he had stayed 10 years, the points would have saved him $80 × 120 = $9,600 minus $3,600 cost = $6,000 net benefit. So points aren’t bad—they’re just bad for short timetables.
The Break‑Even Formula (You Need This)
Break‑even months = Cost of points ÷ Monthly payment savings.
Example: $3,600 ÷ $80 = 45 months.
If you plan to stay longer than 45 months, buy points. If shorter, don’t.
But here’s the catch: most people overestimate how long they’ll stay. Life happens. Job changes. Divorce. Growing families. Shrinking families. I’ve seen too many people buy points and then move 2 years later.
My rule: Only buy points if your break‑even is less than half your expected stay. So if you think you’ll stay 60 months, only buy points with a break‑even under 30 months. That gives you a margin of safety.
The Tax Deduction Myth (Don’t Fall for It)
Some loan officers will tell you that points are tax deductible. True—but only if you itemize deductions. Most people don’t. In 2026, the standard deduction for married filing jointly is around $29,000. Unless you have huge mortgage interest, state taxes, and charitable donations, you’re probably taking the standard deduction.
Even if you do itemize, points are deductible over the life of the loan—not all at once. It’s not the big tax break they make it sound like.
Points vs. Larger Down Payment
If you have extra cash, which is better: buying points or making a larger down payment? It depends on your LTV. If a larger down payment drops you below an LTV threshold (like 80% or 70%), that might eliminate PMI or get you a better rate anyway. Run both scenarios.
For Carlos, a larger down payment wasn’t an option because he was refinancing. But for homebuyers, it’s a real choice.
The “Negative Points” Trick (Lender Credits)
You can also go the other way. Instead of buying points, you can accept a higher interest rate in exchange for a lender credit that covers your closing costs. This is called “negative points.” It’s great for short‑term homeowners or people who want to minimize upfront cash.
Example: 6.8% with a $3,000 credit vs. 6.5% with $0 credit. If you stay less than 3 years, the 6.8% option wins. If you stay longer, the 6.5% wins.
Carlos didn’t need negative points either. He took the 6.5% with no points and used the cash he saved to pay down credit card debt. Good move.
When Points Actually Make Sense
I’m not anti‑points. They make sense in three situations:
- You’re staying in the home for 10+ years. The math works.
- You’re buying a “forever home.” No plans to move.
- The points are discounted. Sometimes lenders offer 0.3% rate reduction for 1 point. That’s a great deal. The standard is 0.25% per point. Anything better tilts the math.
I had a client, Marie, who bought a home at age 35 and planned to stay until retirement. She bought 2 points for $5,000 and lowered her rate from 6.8% to 6.3%. Break‑even was about 4 years. She’s now 7 years in and has saved over $7,000. That’s a win.
The “What If Rates Drop Again?” Problem
If you buy points and then rates drop 1% a year later, you might refinance. That would wipe out the benefit of those points. So points only make sense if you’re confident you won’t refinance again soon.
Given that the Fed is probably holding rates steady for now, refinancing soon is unlikely. But nobody knows. If rates drop to 5.5% in 2027, everyone with a 6%+ rate will refi. Those who bought points will have wasted money.
That’s why I’m cautious. Points are a bet that rates won’t drop much further. I’m not sure I’d take that bet today.
The Final Verdict (My Honest Take)
For most people, in most situations, I say: skip the points. Take the higher rate, keep your cash, and invest the difference. Or use the cash to pay down higher‑interest debt. Or just keep it in savings.
The flexibility of having cash in hand is worth more than a slightly lower rate for most households.
But if you have plenty of cash, a long time horizon, and a low risk of refinancing, buy the points. Just do the math first.
I will keep posting updates on this. Check back soon.
P.S. Carlos texted me last week: “I didn’t buy points and used the $3,600 to pay off my credit card. Best decision ever.” I agree.
This article is for informational purposes. Points pricing varies by lender. Always compare the break‑even before buying.
Michael Harrington