Should You Pay for Mortgage Points?

Pay more upfront to save over time? Mortgage points can reduce your rate—but only if the math works in your favor.

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There are always decisions to make when buying a house. Some of them include the amount to borrow, the loan term, and the type of loan. Another consideration is whether you want to buy mortgage points.

Points can be used to reduce the mortgage rate. This reduces the monthly payment. Here’s a breakdown of how points work and when it’s a good idea to buy them.

Mortgage Points Are Discount Points

Mortgage points are sometimes called prepaid interest points or discount points. They are a one-time fee you pay upfront to lower your interest rate on a home purchase or refinance.

A lower interest rate reduces your monthly payment and reduces the total amount of interest you pay for the loan’s duration.

How Much Do Points Lower a Rate

The annual percentage rate (APR) of a loan is a more accurate way to express the cost of borrowing money. That’s because the APR accounts for the interest rate, frequency of compounding, and other costs you pay. The higher the APR, the higher the loan costs.

According to the Ohio Catholic Federal Credit Union, one point generally equals 1 percent. And, typically, it reduces your interest rate or APR by about 0.25 percent.

But this varies depending on the current market conditions and lender.

For example, if you apply for a $300,000 mortgage, one discount point costs you 1 percent of the entire loan amount. That means one point will cost $3,000.

It’s also possible to buy fractional points. So, using the above example, you could purchase 0.5 points for $1,500. Multiple points can also be purchased. For example, two points would cost $6,000. The more points you buy, the lower your interest rate.

Do Points Ultimately Save You Money?

How do you determine whether buying points is worth it?

If you are applying for a $300,000 loan with a 30-year term and it’s based on 7 percent interest, run the numbers.

Having no points would give you a monthly payment of $1,996.

Buying one point would cost you $3,000 and lower your monthly payment to $1,946, saving you $50 per month. It would take you 60 months, or 5 years, to break even, then you would start saving money.

Increasing the number of points you buy increases the savings. But you should note it’s long-term savings.

In a buyer’s market, it’s not unusual for the seller to pay the buyer’s points. If this is the case, you’ll save money from the beginning, and there’s no need to calculate your break-even point.

How Do Mortgage Points Work for Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) have an introductory rate for a specified period that changes periodically. For example, a 5/1 ARM has a fixed rate for five years, then adjusts once a year thereafter.

Buying points for fixed-rate loans and ARMs reduces the interest rate in the same way. But, ensure you check the fine print when buying points on an ARM. You must know how points impact the rate adjustment.

For example, according to Rocket Mortgage, if you pay enough points to reduce your loan rate by 0.25 percent, you should investigate whether the maximum rate of the ARM is reduced (over the period of the loan) or the margin rate (the spread or profit margin the lender adds to the index) is reduced by the same amount.

If the maximum rate is not reduced by the same amount, the benefit of paying for points might disappear once the loan rate starts to adjust.

Are Mortgage Points Tax Deductible?

According to the IRS, in general, points purchased to obtain a new mortgage, refinance an existing mortgage, or for loans secured by your second home, are deducted ratably over the loan’s term.

One of several caveats to this deduction is that you can’t use funds borrowed from your lender or mortgage broker to pay points.

In some cases, the seller may pay the mortgage points on your behalf.

However, according to the IRS, the points the seller pays for on your loan are treated as paid for directly by you from unborrowed funds. But you must subtract the seller-paid points from the purchase price of the house.

If the seller pays the points, they can’t deduct them, although they are considered a selling expense, which reduces the seller’s gain on the sale.

Can You Negotiate Points?

You can negotiate mortgage points. Lenders sometimes offer points on a loan to make the rate look lower. It’s important to talk to several lenders, so you have some leverage when asking for these points.

Start by asking for zero points per lender. This way, you can compare lenders’ rates apples to apples. Then inquire about the mortgage points or discounts the lender can offer you.

You’ll need to discuss points before closing on the loan. Once the terms are set and you’ve signed the papers, there’s no going back to negotiate a better rate unless you refinance and start the process again.

Weigh Your Options When Buying Mortgage Points

You need to evaluate your circumstances and lifestyle when deciding whether to buy points. It really depends on how long you plan to live in the house. If you plan to keep the loan for a long time, paying for points is a good way to save money.

But if you aren’t planning to stay beyond the break-even point, you may want to consider a larger down payment or future refinancing.

The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.