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Are discount points worth paying for?
A point costs 1% of the loan and buys a lower rate for as long as you keep it. Here is how to work out the break-even, why the answer changes if you refinance, and the tax rule that treats purchase points and refinance points completely differently.
Discount points are the one closing cost you choose. Everything else on the settlement statement is a charge for something that had to happen. A point is a trade you opt into: pay more today, pay less every month afterward.
That makes it a break-even problem, and break-even problems have clean answers — provided you are honest about the one input nobody can verify.
How points are priced
One point costs 1% of the loan amount and lowers your rate by some amount the lender decides. There is no fixed exchange rate. A quarter of a percent per point is common, but it moves daily with the bond market and varies by lender, loan type and credit profile. Some days the pricing is generous; some days paying points buys almost nothing.
Work through a typical case. On a $400,000 loan over 30 years:
- At 6.5%, the payment is about $2,528
- At 6.25%, the payment is about $2,463
- The saving is about $65 a month
- One point costs $4,000
$4,000 divided by $65 is about 62 months — a little over five years before you are ahead. Stay longer and the point keeps paying. Leave earlier and you bought something you did not use.
The rate buydown calculator runs this with the actual pricing you have been quoted, which matters because the quarter-point assumption above is an illustration, not a rule.
The input that decides it
Break-even is arithmetic. The thing that turns it into a judgment call is the horizon, and there are two ways to leave a loan, not one.
Most people remember selling. Fewer factor in refinancing. If rates fall meaningfully in year three, you will refinance, and the point you bought in year one stops earning the moment that loan is retired. A buydown is a bet on keeping this specific loan — not on staying in the house.
That asymmetry matters. If rates rise, you keep the loan and the point works out well. If rates fall, you refinance and the point is a loss. You are effectively paying up front for protection against the scenario where you were already going to be fine.
None of that makes points a bad idea. It makes the break-even a floor rather than a midpoint: if your realistic horizon is close to the break-even, treat it as a no.
Where the tax treatment splits
This is the part that trips people up, because the same dollar is handled two completely different ways depending on what the loan was for.
Points on a home purchase can generally be deducted in full in the year you pay them, provided a set of conditions is met — including that the points were not paid in place of amounts ordinarily itemized separately on the settlement statement, and that the funds you provided at or before closing were at least equal to the points charged.
Points on a refinance generally cannot. The IRS is direct about it: points you pay to refinance a mortgage aren't deductible in full in the year you pay them. They are spread over the life of the loan instead. There is a narrow exception where refinance proceeds are used to substantially improve your home — only the portion allocable to that improvement qualifies for the full-year deduction.
Worth remembering too that none of this is worth anything unless you itemize, and most households take the standard deduction. For 2026 that is $16,100 filing single and $32,200 married filing jointly, which is a high bar for mortgage interest and points alone to clear.
Points versus the alternatives
Before buying down the rate, compare the same money against two other uses:
- A larger down payment. Reducing the loan lowers the payment too, and on a conventional loan crossing 80% loan-to-value removes mortgage insurance entirely — often a bigger monthly win than a quarter-point of rate.
- Keeping the cash. Closing costs and a move tend to arrive together, and liquidity in month one is worth more than most people credit.
What to ask
- Exactly how much rate does each point buy, today? Get it in writing on the Loan Estimate, not as a rule of thumb.
- What is the break-even in months, and is it comfortably inside my horizon?
- What does the loan look like with zero points, and with a lender credit? Those two quotes bracket the whole trade, and the negative-points direction is worth seeing even if you do not take it.
- Is this a purchase or a refinance? It changes when you get the deduction, if you get one at all.
Points are neither a trick nor free money. They are a rate you buy by the month, and the only question that matters is how many months you are actually going to use.
Sources: IRS Publication 936, Home Mortgage Interest Deduction, for the treatment of points on a purchase versus a refinance. Payment figures computed with this site's own amortization. Standard deduction figures read from the same constants the calculators use.