What Are Points on a Mortgage?
Discount points are prepaid interest: each point costs 1% of the loan amount and typically lowers your rate by about 0.25 percentage points (it varies by lender). Points pay off only if you keep the loan past the break-even point.
- Break-even point
- 60 months (5 years)
- Cost of points
- $3,200.00
- New interest rate
- 6.5%
- Monthly savings
- $52.90
- Net savings over full term
- $15,842.64
Worked example
Example: $320,000 loan at 6.75%, buying 1 point for 0.25% off
- Cost = 1% × 320,000 = $3,200
- Payment at 6.75% = $2,075.51; at 6.50% = $2,022.62
- Savings ≈ $52.90/month → 3,200 ÷ 52.90 ≈ 60 months
Break-even after about 60 months (5 years).
Formula
Cost = Loan × Points ÷ 100
Break-even months = Cost ÷ (Old payment − New payment)
Points may be tax-deductible as mortgage interest in the year paid for a primary-residence purchase. Ask a tax professional.
Frequently asked questions
Are mortgage points worth it?
Usually if you'll keep the loan (no sale or refinance) longer than the break-even period, often 4–7 years.
What's the difference between discount points and origination points?
Discount points lower your rate. Origination points are a lender fee that doesn't lower the rate.
Can I buy half a point?
Yes, lenders often price in 0.125-point steps.
Is this financial advice?
No. Results are estimates for planning and education. Rates, taxes and lender rules vary — confirm with your lender or a licensed financial professional.
Last reviewed October 17, 2026 · Calculations run in your browser; nothing you enter is sent to a server.