What is a mortgage discount point?

A discount point is prepaid interest that permanently lowers your loan's interest rate. One point costs 1% of the loan amount and typically reduces the rate by about 0.25%, though the exact trade varies by lender.

How do I calculate the break-even point on mortgage points?

Divide the cost of the points by your monthly payment savings. For example, $8,000 in points that save $131.52 a month break even in $8,000 / $131.52 = about 61 months, or roughly 5.1 years. If you keep the loan past that, the points pay off.

Are mortgage points worth it if I might move in a few years?

Usually no. If you sell or refinance before the break-even month, you never recover the upfront fee. In the example above, selling at year 4 (48 months) on a 61-month break-even is a net loss of about $1,687 versus taking no points.

Do discount points lower my taxes and insurance?

No. Points only reduce the interest rate, so they affect the principal-and-interest portion of your payment. Property taxes, homeowners insurance, PMI, and HOA dues are unchanged, which is why you should calculate break-even using principal and interest only.

Are mortgage points tax deductible?

They may be. Discount points are prepaid mortgage interest and can be deductible if you itemize, sometimes in the year paid and sometimes spread over the loan term. The rules depend on your situation, so confirm with a tax professional or the IRS guidance before counting on a deduction.

Is it better to buy points or make a bigger down payment?

It depends on your goal. A bigger down payment shrinks the loan and, if it gets you to 20% down, removes PMI - a benefit points do not provide. Points only lower the rate. Compare each option's payment and recovery period before deciding.

Home › Guides › Are Mortgage Discount Points Worth It? Run the Break-Even Math First

Are Mortgage Discount Points Worth It? Run the Break-Even Math First

By Muhammad Zohaib Ameer · June 3, 2026 · Loans & Mortgage · 5 min read

Buying mortgage discount points is worth it only if you keep the loan longer than the break-even period - the number of months it takes for the lower monthly payment to repay the upfront cost. One point costs 1% of your loan amount and typically lowers your rate by about 0.25%, so the whole decision comes down to one division problem you can do in seconds.

What a discount point actually is

A discount point is prepaid interest. You pay the lender a fee at closing in exchange for a permanently lower interest rate on a fixed-rate loan. The pricing is simple to describe even though the exact trade varies by lender and by day:

Cost: 1 point = 1% of the loan amount. On a $400,000 loan, one point is $4,000.
Benefit: each point usually buys roughly a 0.25% rate reduction, though it can be more or less. You can also buy fractions, like half a point.

This is a true rate buydown that lasts for the life of the loan, which is different from a temporary buydown (like a 2-1 buydown) where the rate steps back up after the first year or two. This guide is about permanent discount points only.

The break-even formula

The entire decision fits in one line:

Break-even (months) = Cost of the points / Monthly payment savings

If you will stay in the home and keep this exact loan past the break-even month, the points pay for themselves and everything after is profit. If you sell, refinance, or pay the loan off before then, you lose money on the deal.

A worked example: $400,000 loan, 30 years

Say a lender offers 6.75% with no points, or 6.25% if you buy 2 points (2% of $400,000 = $8,000). Here is the math on principal and interest only:

Option	Rate	Upfront cost	Monthly P&I	Monthly savings
No points	6.75%	$0	$2,594.39	-
2 points	6.25%	$8,000	$2,462.87	$131.52

Now run the formula: $8,000 / $131.52 = about 61 months, or roughly 5.1 years to break even.

If you sell or refinance at year 4 (48 months), you saved $131.52 x 48 = $6,312.96 - that is a net loss of about $1,687 versus taking no points.
If you keep the loan to year 7 (84 months), you saved $11,047.68 - a net gain of about $3,048.
If you keep it the full 30 years, the lower rate saves roughly $47,348 in total interest, far more than the $8,000 cost.

One point works the same way. At 6.50% (1 point = $4,000), the payment is $2,528.27, saving $66.12 a month - break-even is $4,000 / $66.12 = about 60.5 months. Notice the break-even is nearly identical whether you buy one point or two, because the cost and the savings scale together. Test your own rate quotes side by side in the Mortgage Calculator by changing only the interest rate.

How to decide in four steps

The short version: compare your break-even period to how long you realistically expect to keep this specific loan.

Step 1 - Get two real quotes

Ask the same lender for the payment with and without points so the loan amount and term are identical. Only the rate and the upfront fee should differ.

Step 2 - Find the monthly savings

Subtract the lower payment from the higher one. Use principal and interest only - taxes and insurance do not change when you buy points.

Step 3 - Divide to get break-even

Cost of points divided by monthly savings equals the number of months to recover the fee. Convert to years by dividing by 12.

Step 4 - Compare to your real timeline

If you will keep the loan well past break-even, points usually win. If you might sell or refinance sooner, keep the cash. You can pressure-test the upfront cost against other uses of that money - like a bigger down payment - and check the recovery period the same way you would any cost-versus-savings decision with the Break-Even Calculator.

When points usually make sense

You are staying put. A long, stable hold past the break-even month is the single biggest factor in points paying off.
You have cash to spare after the down payment and reserves. Never drain your emergency fund to buy a slightly lower rate.
Rates are unlikely to fall soon. If you refinance to a lower rate in two years, you never reached break-even on the points you bought today.

When to skip them

You might move or refinance within a few years. Selling before break-even turns the fee into a pure loss.
The cash is better used elsewhere. A larger down payment can shrink the loan and, under 20% down, remove PMI - a benefit points do not give you.
You are stretching to close. Closing costs already add up; do not add an optional fee you cannot comfortably afford.

A note on taxes: discount points are prepaid mortgage interest and may be deductible if you itemize, sometimes in the year paid and sometimes spread over the loan. Rules change and depend on your situation, so confirm with a tax professional rather than assuming a deduction. The IRS explains the current treatment of points in Topic No. 504, Home Mortgage Points.

The bottom line

Points are not a trick or a trap - they are a coin-flip math problem. The lower rate is real, but so is the upfront cost, and the only thing that settles it is how long you keep the loan versus the break-even month. Once you have two quotes, the decision takes one minute. Plug both rates into the Mortgage Calculator to confirm the payments and total interest, and if you are still deciding how big a loan to take on at all, start with the Loan Affordability Calculator.

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Frequently asked questions

What is a mortgage discount point?: A discount point is prepaid interest that permanently lowers your loan's interest rate. One point costs 1% of the loan amount and typically reduces the rate by about 0.25%, though the exact trade varies by lender.
How do I calculate the break-even point on mortgage points?: Divide the cost of the points by your monthly payment savings. For example, $8,000 in points that save $131.52 a month break even in $8,000 / $131.52 = about 61 months, or roughly 5.1 years. If you keep the loan past that, the points pay off.
Are mortgage points worth it if I might move in a few years?: Usually no. If you sell or refinance before the break-even month, you never recover the upfront fee. In the example above, selling at year 4 (48 months) on a 61-month break-even is a net loss of about $1,687 versus taking no points.
Do discount points lower my taxes and insurance?: No. Points only reduce the interest rate, so they affect the principal-and-interest portion of your payment. Property taxes, homeowners insurance, PMI, and HOA dues are unchanged, which is why you should calculate break-even using principal and interest only.
Are mortgage points tax deductible?: They may be. Discount points are prepaid mortgage interest and can be deductible if you itemize, sometimes in the year paid and sometimes spread over the loan term. The rules depend on your situation, so confirm with a tax professional or the IRS guidance before counting on a deduction.
Is it better to buy points or make a bigger down payment?: It depends on your goal. A bigger down payment shrinks the loan and, if it gets you to 20% down, removes PMI - a benefit points do not provide. Points only lower the rate. Compare each option's payment and recovery period before deciding.

Muhammad Zohaib AmeerFounder & Personal Finance Researcher

Muhammad Zohaib Ameer is the founder of The Money Calcs. He personally builds, tests and researches every calculator and guide on the site — translating the standard financial formulas used by banks and lenders into free, plain-English tools. His focus is accuracy and clarity: helping everyday people understand mortgages, loans, savings, investing, retirement and debt without jargon, sign-ups or sales pitches.