A mortgage point, or discount point, is a fee equal to 1% of your loan amount paid at closing in exchange for a lower interest rate. On a $400,000 loan, one point costs $4,000. Points are worth it when you keep the loan long enough for the monthly savings to pay back the upfront cost, and not worth it when you are likely to sell or refinance before then.
How much a point lowers the rate
There is no fixed exchange rate. The reduction you get for each point depends on that day's pricing, the program and your loan. Sometimes one point buys a meaningful drop, sometimes much less. Points can also be bought in fractions, so you might pay half a point or a point and a quarter. Ask for a side-by-side of at least three options: no points, the option with a lender credit, and one or two point levels.
The break-even calculation
- Cost of the points, in dollars.
- Monthly payment savings from the lower rate, principal and interest only.
- Divide 1 by 2. That is your break-even in months.
Example: $4,000 in points lowers the principal and interest payment by $70 a month. $4,000 divided by $70 is about 57 months, a little under five years. Keep the loan longer than that and the points paid for themselves. Sell or refinance sooner and you lost money.
This simple version ignores the investment return you could have earned on the $4,000 and the tax treatment, both of which push the real break-even a bit further out. Consult your tax advisor on deductibility.
The honest question: how long will you keep this loan?
Not the house, the loan. Most loans are paid off long before their term ends, because people move or refinance. If rates are high today and there is a real chance they fall and you refinance in two or three years, the points you paid are gone. That is the most common way buyers lose money on points.
Points make the most sense when:
- Rates are already relatively low and you expect to keep the loan a long time.
- You are buying your long-term home, not a starter.
- The break-even is short, roughly four years or less.
- You are retired or near it and want the lowest permanent payment.
Points can help you qualify
Because points lower the note rate, they lower the qualifying payment and can improve your debt-to-income ratio. That is a real advantage over a temporary buydown, which generally does not help you qualify. See Permanent vs Temporary Buydown and How a 2-1 Buydown Actually Works.
Who can pay for points
You, the seller as part of negotiated concessions within program limits, or a builder. When a seller is willing to contribute, a permanent buydown is often a better use of that money than a price reduction of the same size. See Seller Concession vs Price Reduction: The Math and Buydown Funds: Who Can Pay.
Points vs lender credits
Lender credits are the reverse of points: you accept a higher rate and the lender pays some of your closing costs. That makes sense when you are short on cash or expect to refinance soon. Same break-even logic, run backward.
Use our Rate Buydown Calculator to test a few scenarios, then ask me for the real pricing on your loan.
Why ask me
- I answer the question before I sell you anything. If renting, waiting or a different program is the better move, I will say so.
- Real numbers, not a calculator guess. I price your actual scenario, side by side, with the fees on the page.
- Every program under one roof. Conventional, FHA, VA, jumbo, and non-QM options like bank statement, DSCR and asset-based loans, so the program fits you instead of the other way around.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
More plain-English answers in the Mortgage Education library.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Program guidelines, eligibility requirements and documentation standards vary by investor and change over time. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify. This is not legal or tax advice; consult a qualified professional about your own situation.
Find out which program actually costs you less
FHA, conventional and jumbo price the same borrower very differently once the mortgage insurance is compared across the years you will own the home. Tell me the shape of your file and I will run them side by side.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
