Mortgage Points: Should You Pay to Buy Down Your Rate?

"Discount points" let you pay extra at closing in exchange for a lower interest rate. One point costs 1% of your loan amount and typically lowers your rate by about 0.25%, though the exact amount varies by lender.

The break-even on points

Buying points only pays off if you keep the loan long enough to recoup the upfront cost through lower monthly payments. On a $300,000 loan, one point costs $3,000. If it saves you $45 a month, you break even in about 67 months — a little over five and a half years.

When points make sense

• You plan to stay in the home well past the break-even point.
• You have cash to spare at closing without draining your reserves.
• You want to lock in the lowest possible long-term payment.

When to skip them

• You might move or refinance within a few years.
• You'd rather put the cash toward a larger down payment to avoid PMI.
• Your closing budget is already tight.

Try both scenarios — with and without points — in the mortgage calculator by adjusting the interest rate to see how the monthly payment and total interest change.