Are mortgage points worth it?

Discount points trade more cash upfront for a lower mortgage rate. Whether that exchange helps depends less on the advertised rate and more on how long you keep the loan.

What a point costs

One point generally equals 1% of the loan amount, but the rate reduction purchased by a point is not fixed. Compare exact same-day quotes from the same lender.

Calculate break-even

Divide the upfront point cost by monthly principal-and-interest savings. This simple break-even estimate shows how many months the loan must remain in place before nominal savings recover the cost.

Consider your holding period

Selling, refinancing, or paying off the mortgage before break-even usually makes points unattractive. A longer expected holding period makes recovery more likely, though plans and rates can change.

Compare lender credits

Negative points or lender credits move the trade in the opposite direction: lower upfront cost in exchange for a higher rate. They can help conserve cash but may increase long-run interest.

Primary source

Consumer Financial Protection Bureau: points and lender credits