Mortgage Points Pros and Cons: How to Decide if They Pay Off

According to data from Freddie Mac, the average 30-year fixed mortgage rate in 2025 is around 6.5%[1]. With such high interest rates, homebuyers might wonder whether paying upfront to reduce rates is a good idea. There are both pros and cons to buying points on a mortgage, and whether you do depends on your financial situation, the cost, and other variables that are specific to your home purchase.

Buying mortgage points can lower your mortgage rate, which reduces monthly payments and reduces the amount of interest you’ll pay over the loan’s lifetime. Mortgage points typically cost 1% of the loan value and reduce your rate between 0.125% and 0.25%. Over the loan term, you’ll eventually break even and make up the cost in savings on interest. 

However, some buyers might be averse to mortgage points because they're skeptical of their benefits and don’t want to add to closing costs. 

This article will explain the pros and cons of buying points on a mortgage and whether you should consider them. 

What are mortgage points?

Mortgage points, also called discount points, are closing fees you pay to the mortgage lender to lower your interest rate. 

By reducing your interest rates, your monthly payments will be lower, and you’ll save money by paying less interest over the loan term.

Mortgage discount points are distinct from origination points and rebate points:

• Origination points are fees the lender charges at closing to cover the costs of loan underwriting and processing. Origination points are usually equal to a percentage of the loan value. Not all mortgage lenders charge origination fees on loans. 
• Rebate points are credits the lender gives you to lower closing costs. In return, you pay a higher interest rate. You can think of mortgage rebate points as the opposite of mortgage discount points — i.e., instead of paying more upfront for a lower rate, you pay less upfront for a higher rate. 

How buying mortgage points works

With mortgage points, you are effectively pre-paying for interest, so your monthly payments are lower. A single point lowers your rate by a range of 0.125% to 0.25% and usually costs 1% of the loan principal.

Here’s an example: With a $350,000 loan at a 6.5% rate, your monthly payment would be $2,212. Buying one point for $3,500 could lower that rate to 6.25%, reducing your monthly payment to $2,155. Some lenders also offer points in half increments, giving you more options to reduce rates.

Mortgage points are most beneficial for long-term fixed-rate mortgages. The reduced mortgage rate applies over the entire life of the loan, making savings more consistent. 

You can purchase discount points on an adjustable-rate mortgage, but the lower interest typically only applies to the fixed-rate period. 

Pros of buying points on a mortgage

#1: Lower interest rates on your mortgage

The primary reason to buy mortgage discount points is to get a lower interest rate. A single point can lower your rate by as much as 0.25%, which is why buying points is called “buying down the rate.” 

A quarter of a percent might not seem like a big deal, but points add up quickly when working with the large numbers and long terms of traditional mortgages.

#2: Lower your monthly payment

Lower interest rates mean smaller monthly payments. For instance, imagine you secure a typical 30-year mortgage for $400,000 with a 6.5% rate. 

Buying 2 points for $8,000 would knock the rate down to 6.0%, lowering your monthly payment from $2,528 to $2,398, a difference of $130 for every mortgage payment.

#3: Higher chance of qualifying

If your monthly payments are lower, your debt-to-income ratio is also lower, giving you better odds of qualifying for the loan. In our current example, an extra $130 a month in your budget could eliminate that last bit of lender risk.

#4: Save money over the loan lifetime

With lower interest rates, you pay less in interest over the loan lifetime. With a 30-year $400,000 loan at 6.5%, you’ll end up paying $510,178 in interest. 

At a 6% rate, you’ll instead pay $471,353 ($463,353 from interest + $8,000 for 2 points). That’s a savings of nearly $39,000.

Cons of buying points on a mortgage

1: Higher closing costs

Mortgage points can quickly balloon closing costs, particularly with large loans. You can easily spend $10,000+ between points and other miscellaneous fees. 

That extra money might be better served going toward a larger down payment to reduce your loan-to-value ratio. With a lower LTV, you can also get a better deal on mortgage insurance, further saving money.

2: Risk of not breaking even

If you sell or refinance your house too early, there is a risk you won’t break even. The break-even point is when the amount of money saved on interest payments is more than what you spent on the mortgage points. 

For instance, if you spend $4,000 on mortgage points and save $60/month on lower monthly payments, it would take about five and a half years to make up that $4,000 and break even ($4,000 ÷ $60/month = 66 months ≈ 5.5 years). Selling or refinancing before then means you’ll miss out on the savings.

3: Opportunity costs

Mortgage points usually cost 1% of the total loan value. Assuming an average mortgage of $375,000, two points would cost about $7,500 — a fair chunk of change. 

You could instead use that money to pay off high-interest debt, invest it in stocks, or top off your emergency savings. Moreover, mortgage points give diminishing returns the more you buy, further increasing opportunity costs. 

How to calculate mortgage points and break-even

With discount points, you pay a larger amount upfront in exchange for lower monthly payments. Eventually, the savings from lower payments will make up for the initial cost of the points. 

This is called the break-even point and represents how long you’ll need to stay in your home to benefit from buying points.

Calculating your break-even point is fairly straightforward: Just divide the initial cost of the points by the amount you save each month on lower payments:

• Break-even point (months) = Cost of points ÷ savings per month

Let’s look at some specific numbers to make things easier: Say the lender gives you a 30-year $100,000 loan at a 6.5% rate. Below are the associated costs with no discount points:

• Rate: 6.5%
• Term: 30 years
• Monthly payment: $632.07
• Total interest over loan lifetime: $127,544.49

Below are break-even calculations for different amounts of mortgage discount points:

As you can see, buying mortgage points can save you money on interest payments. But the more points you buy, the longer it’ll take to break even. 

Mortgage points vs. down payment: What to prioritize

One option is to take the money you would have spent on discount points and put it toward your down payment instead. A larger down payment reduces the amount of money you have to borrow, which can also reduce monthly payments and total interest paid. 

For instance, say you decide to put $5,000 on a down payment instead of buying points. With a larger down payment, you can borrow less money and may even receive a lower interest rate. 

A larger down payment can also reduce mortgage insurance costs. Some private lenders won’t require mortgage insurance if the down payment is big enough. 

Which one you should prioritize rests on your time horizons. In the short term, making a larger down payment can be beneficial. However, mortgage points may be better in the long term if you don’t expect to sell soon. 

So, should you buy mortgage points?

So, is it a good idea to buy mortgage points?

Ultimately, it depends on your specific finances and life plan. If you have spare cash and plan to stay in your home for several years, mortgage points can be a smart idea. You’ll lock in a lower rate and save money over the loan lifetime.  

If you instead plan to move within the next few years or need to allocate that cash elsewhere, you may want to forgo buying points. You can play around with our mortgage points calculator to see how buying points will impact your mortgage. 

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