Are Mortgage Points Worth It? How to Calculate Your Break-Even in 2026

What a mortgage point actually is

A discount point is cash you pay the lender at closing to get a lower interest rate. The Consumer Financial Protection Bureau is plain about the unit: one point equals 1% of the loan amount. On a $400,000 loan, one point costs $4,000. Fractions such as 0.5 are allowed. The points show up on page 2, Section A of the Loan Estimate.

That is not the same as every fee labelled “points.” Some origination charges are also quoted as a percent of the loan and do not cut the rate. If the charge is a true discount point, the same lender’s quote with the point should have a lower rate than that lender’s zero-point quote for the same loan. Ask for both on paper.

How to calculate your break-even

The break-even is one division: points cost divided by the monthly principal-and-interest saving. If one point costs $4,000 and the payment drops by $100, you need 40 months of the lower bill to get the cash back. After that, the cheaper payment is yours to keep — until you sell or refinance.

Run your own quote in the mortgage points calculator. It prices the points, builds both amortizing payments, and rounds break-even up to a whole month. It does not look up rates. Type the numbers from your Loan Estimate.

Worked example: $400,000 at 6.75% versus 6.375%

The rates below are an illustration, not a lender quote. A $400,000 30-year fixed loan at 6.75% has a monthly principal-and-interest payment of $2,594.39. One discount point at 1% of the loan costs $4,000. If that point cuts the rate by 0.375 percentage points, the new rate is 6.375% and the new payment is $2,495.48.

• Upfront cost: $4,000
• Monthly P&I without points: $2,594.39
• Monthly P&I with 1 point: $2,495.48
• Monthly saving: $98.91
• Break-even: $4,000 ÷ $98.91 = 40.4 months, shown as 41 months once you round up

Open the same scenario in the mortgage points calculator if you want the bars and the holding-period track, not just the headline.

Leave at 24 months and the lower payment has returned only $2,373.84 of the $4,000. You are still $1,626 behind on cash. The remaining balance is only $634 lower ($390,543.51 versus $391,177.19). Extra principal helps on a sale; it does not close that gap.

Interest over 5, 10, and 30 years

Monthly saving times months is the cash-flow view. Adding up the interest charged on each schedule is the cost-of-borrowing view. They differ because the lower-rate loan also pays down a little more principal along the way. Both views use the same two loans.

• 5 years: interest $131,166.38 without points versus $123,629.75 with 1 point. Interest saved $7,536.63. After subtracting the $4,000, the simple cash net is $1,934.77.
• 10 years: interest $252,531.08 versus $237,492.01. Interest saved $15,039.07. Simple cash net $7,869.53.
• 30 years: interest $533,981.26 versus $498,372.65. Interest saved $35,608.60. Simple cash net $31,608.60 — the full-term interest saving minus the $4,000.

At the five-year mark the remaining balances are $375,502.84 without points and $373,900.98 with the point. You have paid about $1,602 extra principal as well as the lower interest. The amortization calculator shows that split month by month if you want the schedule rather than the totals.

When points make sense

Points are a long-hold product. They fit when you expect to keep this loan past break-even, you have the cash without draining an emergency fund, and the rate cut is printed on the same lender’s Loan Estimate — not borrowed from a different quote.

• You plan to stay put well past 41 months in this example, preferably five years or more.
• The cash would otherwise sit in a checking account, not close a 20% down-payment gap or cover closing costs you still need.
• You compared that lender’s zero-point rate with that lender’s with-points rate, same loan type, same term.
• A refinance is not already on the calendar. If rates fall and you replace the loan, the monthly saving on these points stops.

The APR calculator is a second check: points raise what you pay to get the loan, so APR is usually higher than the note rate even when the note rate is lower.

When they do not

Skip points, or buy fewer of them, when the hold is short. A job move, a starter home you expect to sell, an adjustable-rate reset, or a refinance if rates drop can all cut the holding period below break-even. The refinance break-even guide uses the same cost-divided-by-monthly-saving idea on a replacement loan.

The same $4,000 can also be extra down payment. A $396,000 loan at 6.75% for 30 years has a payment of $2,568.45 — $72.97 a month higher than the points loan, but you borrowed $4,000 less. After 24 months the remaining balance is $387,265.42, about $3,278 lower than the points loan’s $390,543.51. On a sale, that extra down payment is equity you recoup. The point is prepaid interest you may not recoup.

If the $400,000 loan is already the amount, sending $4,000 as extra principal in month one — without recasting — keeps the $2,594.39 payment and finishes about 11 months early. Lifetime interest falls by about $25,270, less than the $35,609 the point saves over 30 years, but you keep the option to stop. The extra payment calculator runs that lump-sum path.

The rate cut matters as much as the hold. If one point only cuts this $400,000 loan from 6.75% to 6.50% — a 0.25-point reduction — the payment becomes $2,528.27 and the monthly saving is $66.12. Break-even stretches to 60.5 months, shown as 61 months. After five years the simple cash net is −$32.78: essentially a wash. A thinner cut is not automatically a bad deal. It is a longer clock.

Lender credits: points in reverse

Lender credits are the same trade in the other direction. You take a higher rate. The lender chips in toward closing costs. The CFPB notes that some worksheets call this negative points. A $4,000 credit on a $400,000 loan is one negative point. Credits appear as a negative number on page 2, Section J of the Loan Estimate.

The break-even formula still works. Now the “cost” is the extra interest each month, and the “saving” is cash you did not bring to closing. If you would leave before points would break even, a credit can be the better side — especially if that cash is the difference between closing and not closing. Pair it with the closing costs calculator so you are not comparing rate without cash to close.

Are mortgage points tax deductible?

Sometimes, and the tests are specific. IRS Publication 936 treats points as prepaid interest. On a loan to buy or substantially improve your main home, you may be able to deduct qualifying points in the year you pay them if you itemize and the publication’s tests are met — including that the points are a percentage of the loan, shown as points on the settlement statement, and not a stand-in for other closing charges. Points on a refinance are generally deducted evenly over the life of the new loan, not all at once.

A deduction is not automatic. You have to itemize. The value depends on your tax bracket and on whether the points actually qualify. This article and the calculator do not apply a tax adjustment. Read Publication 936 and, if the amount is large, speak with a tax professional. Do not bake an assumed refund into break-even.

Common mistakes

• Using a generic 0.25-percentage-point cut when your Loan Estimate shows less. A thinner cut stretches break-even, as the 6.75% to 6.50% case shows.
• Comparing one lender’s with-points quote to a different lender’s zero-point quote. The fair test is two options from the same lender, same loan.
• Assuming you will keep a 30-year loan for 30 years. Many borrowers sell or refinance much sooner.
• Spending cash on points that you still need for a 20% down payment, an emergency fund, or the rest of closing costs.
• Counting a tax deduction as money in the bank. Publication 936 has tests; the calculator does not run them.

If the full housing payment — principal, interest, tax, and insurance — is the number you have to live with, run it in the mortgage calculator after you have chosen a rate. Points change only the P&I line.

• How should I use lender credits and points (also called discount points)? — Consumer Financial Protection Bureau
• What costs come with taking out a mortgage? — Consumer Financial Protection Bureau
• Publication 936 (2025), Home Mortgage Interest Deduction — Internal Revenue Service