Mortgage Points 2026: Break-Even Math and When to Buy Them
By the 3Tej Research Desk · Published May 23, 2026 · 3 min read
- 1 point = 1% of loan amount, typically reduces rate by 0.25% (varies by lender)
- Break-even: 4 to 7 years on a 30-year loan (depends on rate drop)
- Pays off ONLY if you keep the loan past the break-even
- Points are typically tax-deductible in the year paid (US, itemizers)
- Hot tip: lender may offer 'negative points' (credit at closing for higher rate) too
Mortgage discount points let you pay upfront cash to lower your interest rate. Each point is 1% of the loan amount and typically buys down the rate by 0.25%, though the exchange rate varies by lender and market conditions. The math is straightforward: divide upfront cost by monthly savings to get the break-even in months. If you keep the loan longer than the break-even, points were worth it. If you sell or refinance earlier, they weren't.
What are mortgage points?
A discount point is 1% of the loan amount paid at closing to reduce the interest rate. On a 400,000 USD loan, 1 point = 4,000 USD upfront. The rate reduction varies: typically 0.25% per point but ranges from 0.125% to 0.375% depending on lender margins and rate environment.
Lenders also sometimes sell 'negative points' (also called lender credits) where you take a higher rate in exchange for cash AT closing. Same math in reverse.
Break-even math
Example: 400,000 USD loan, 30-year amortization.
| Scenario | Rate | Monthly P&I | Upfront | Monthly savings | Break-even |
|---|---|---|---|---|---|
| No points | 6.50% | 2,528 USD | 0 | - | - |
| 1 point | 6.25% | 2,463 USD | 4,000 USD | 65 USD | 62 months |
| 2 points | 6.00% | 2,398 USD | 8,000 USD | 130 USD | 62 months |
| 3 points | 5.75% | 2,334 USD | 12,000 USD | 194 USD | 62 months |
Roughly 5 years. If you keep the loan 6+ years, every additional month of savings is pure win. Sell at year 4 and you LOST 1,000+ USD per point.
When mortgage points win
- Long hold horizon. Forever home, multi-decade plan. The 5-year break-even is short relative to a 20+ year hold; total savings can exceed 30,000 USD on a 400k loan.
- Refinance unlikely. If rates are LOW now and unlikely to drop further, you won't refinance. Points lock in the savings.
- Tax-deductible (US itemizers). Points on a primary residence purchase are typically deductible in the year paid. Effective cost drops by your marginal rate. In a 24% bracket, a 4,000 USD point costs only 3,040 USD after tax.
- Cash on hand is abundant. Points come out of closing cash. If using all available cash for the down payment + reserves, leave nothing for points.
When to skip points
- Short hold horizon. Job mobility, growing family, military. Selling before break-even erases the value.
- Rates likely to drop. If you'll refinance within 5 years, points paid now were money down the drain.
- Cash needed elsewhere. Reserves, emergency fund, down payment. Points are a low-priority use of closing-time cash.
- You can invest the cash at higher return. The 'point break-even' is roughly 5 years at 0.25% rate drop. Invested at 7% real for 5 years, the same cash grows to 1.4x its starting value. If you're investing instead, skip points.
Negative points (lender credits)
The mirror image: lender PAYS you cash at closing in exchange for a HIGHER rate. Common terms:
- 1 credit point = 1% of loan, raises rate by 0.25%
- Useful when closing cash is tight
- Break-even works in reverse: how long until the higher monthly payment exceeds the upfront credit
Credits make sense for short-hold scenarios. Plan to sell in 3 years? Take the credit; bank the difference; the higher rate over 36 months barely catches up to the upfront cash.
Frequently asked questions
How much do mortgage points cost?
1 point = 1% of the loan amount. On a 400,000 USD loan, 1 point = 4,000 USD paid at closing. Each point typically reduces the rate by 0.25%, though the exchange rate varies by lender and market conditions.
Are mortgage points tax-deductible?
In the US, points on a primary residence purchase are usually deductible in the year paid (if you itemize). Points on a refinance must be amortized over the life of the loan. Points on investment properties have separate rules. Consult a tax professional for your situation.
Should I buy points or make a larger down payment?
Depends on hold horizon and current LTV. If LTV is above 80% (you have PMI), reducing the loan to get below 80% might be more valuable than rate buydown. If LTV is already under 80% and you have cash to spare, the calculus is purely break-even based on hold horizon.
How are points different from origination fees?
Discount points reduce the rate. Origination fees compensate the lender for processing the loan. Both are paid at closing but only discount points actually buy you a lower rate. Compare lender offers on APR, which includes both, not just the headline rate.
Can I negotiate points?
Yes. Lender quote sheets are negotiable on points/credits. Comparing offers from 3+ lenders is the best leverage. Bringing a competing offer (with a Loan Estimate from another lender) typically gets you 0.125% better on the rate-points trade.
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Sources and methodology
Numbers on this page are sourced from official government / regulator websites and refreshed automatically every Sunday by our build pipeline. Hover any number with a dotted underline to see its source and as-of date.
Tax authorities cited (8 jurisdictions)
Methodology: each calculator linked from this post documents its formula. Live market data (FX, treasury yields, mortgage rates) is pulled from public APIs (exchangerate.host, FRED, BoE, ECB, BoC, CoinGecko, stooq).