Should you buy mortgage points?

When you get a mortgage, you’ll be asked to make decisions about things like how much to borrow, what type of loan to get, and the term of the loan, among other things.

One important consideration you’ll have to think about when getting a loan is whether you want to buy mortgage points. Points are a form of prepaid interest, so you pay more upfront, but each point you buy reduces the rate of your mortgage, which also reduces the monthly payment.

We’ll break down how points work and when it can be a good idea to buy them.

A brief introduction to interest rates

The interest rate of a loan is the cost of borrowing money. Rates are expressed as a percentage of the amount borrowed per year. For a simplified example, if you got a 1-year loan for $1,000 at 5% interest and made no payment until the end of the year, $50 (5% of $1,000) in interest would accrue, meaning you would have to pay $1,050 to pay the loan off.

With large, long-term loans, the interest rate can play a big role in the loan’s total cost. For example, a 30-year fixed-rate $350,000 mortgage at 5.99% interest (6.09% APR) would cost $2,096.18 a month for a total of $754,623.77 over the life of the loan. 1 At 5.5% (5.76% APR) interest, the same loan would cost $1,987.26 a month for a total of $715,414.14, a nearly $50,000 savings. 2

People try to reduce the impact of interest on their mortgage in many ways. The less you borrow, the less interest accrues. Shorter-term loans also tend to have lower rates and leave less time for interest to accrue.

Buying mortgage points is another way to reduce the interest rate of a loan.

What are mortgage points?

A mortgage point, which is sometimes called a discount point or a prepaid interest point, is a one-time fee you pay to lower the interest rate on your home purchase or refinance. One discount point costs 1% of your home loan amount.

For example, if you take out a mortgage for $300,000, one point will cost $3,000. When you purchase a point, you prepay the interest for a smaller monthly payment.

It’s possible to buy fractional points. So, using the example above, you could purchase 0.5 points for $1,500. You can also buy multiple points. Two points would cost $6,000. The more points you buy, the more you’ll decrease your interest rate.

How do mortgage points work?

Mortgage points are a form of prepaid interest, and each point you pay for reduces the interest rate of your mortgage.

For example, if you buy 1 point, it usually reduces the rate of your loan by 0.25%, reducing both the total amount you’ll pay over the life of the loan and the loan’s monthly payment.

When you’re applying for a loan, you can work with your lender to purchase points. You usually pay for the points at closing along with your down payment and other closing costs.

Mortgage points change your APR

The annual percentage rate (APR) of a loan is a more accurate way to express the cost of borrowing money than just the loan’s interest rate. APR accounts for the loan’s interest rate, the frequency of compounding, and other costs you must pay.

The higher the APR of a mortgage, the more the loan costs, both monthly and overall.

Paying for points reduces the interest rate of your loan, which reduces its APR. You pay an upfront cost in exchange for a lower monthly payment and a lower cost to pay the loan back.

Mortgage points and adjustable-rate mortgages

Mortgages can come with two types of interest rates.

Fixed-rate mortgages have an interest rate that does not change for the life of the loan.

Adjustable-rate mortgages (ARMs) have a rate that is set for an introductory period and then changes periodically. For example, a 5/1 ARM has a rate that is fixed for the first 5 years of the loan and then adjusts once per year after that.

Rates are based on an index rate plus a margin rate. For example, the index rate could be the yield of a ten-year U.S. government bond the margin rate 2%. When the time to adjust your loan’s rate comes, if a ten-year bond pays 4.5%, your loan’s rate will adjust to 6.5%. ARMs often come with a minimum and maximum rate.

Buying points works the same for an ARM or fixed-rate loan, reducing the loan’s interest rate. However, it’s important to check the fine print to see how points impact the rate adjustment. For example, if you pay for enough points to reduce your loan rate by 0.25%, is the maximum rate of the ARM or the margin rate reduced by the same amount? If not, the benefit of paying for points might disappear once the loan’s rate starts to adjust.

IRS rules for mortgage points

One of the best-known tax deductions that people can take is the mortgage interest deduction . Because mortgage points are a form of prepaid interest, you can include the cost of any points you purchased in your interest costs when filing your taxes.

To take the deduction, you need to itemize your deductions on Schedule A of Form 1040. Other rules for deducting mortgage interest , such as only being able to deduct interest on loans used to build, buy, or improve your residence, still apply.

How to calculate your breakeven point

When you pay for points, you’re putting money down up front to reduce the monthly payment and total cost of your loan. Before you commit to buying points, you need to make sure you’re getting a good deal.

In general, the longer you plan to keep a mortgage, the better it is to pay for points. You can calculate your breakeven points, the point at which you’ve saved as much money in interest as you paid for points, by comparing the payment of your loan with and without points.

For example, let’s look again at a couple of scenarios for a 30-year, $350,000 loan. If the rate with a minimal quarter point is (6.09% APR), you’ll pay $2,096.18 each month. You can also choose to pay $7,000 to buy two points, reducing the loan rate to 5.5% (5.76% APR). At 6% interest, the monthly payment would be $1,987.26, $108.92 less.

Next, divide the amount paid for points, $7,000, by the monthly savings of $108.92. The result is the number of months until you’ve saved as much in interest as you’ve paid in points.

In this case, the result is 65 months, so you’ll need to keep the loan for about 5 and a half years before paying for points is a better deal than not paying for points.

The benefits of mortgage points

There are a lot of good reasons to consider buying mortgage points.

• You can save money in the long run: Paying for points reduces your loan rate and monthly payment, and you’ll pay less for the loan overall. If you keep the loan for long enough, the interest savings will eclipse the amount you pay for points.
• Your monthly payments will be lower: Reducing the loan’s interest rate will lower your monthly payment. That can help make your loan more affordable on a month-to-month basis.
• You could save on taxes: Points are a form of prepaid interest, so you can deduct the amount you pay for points when filing your taxes. If you pay a large amount for points, you may be able to itemize your deductions that year to reduce your overall tax burden.

How much can you save by buying mortgage points?

The table below illustrates how much you can save by purchasing different mortgage point totals. While you may not be able to get a 0-point rate on a given day, the first row assumes minimal points and compares it to buying more points.

You’ll be able to see interest paid and savings. This is based on a $350,000 loan with a base interest rate of 5.99% (6.09% APR) with 0.25 points purchased as a baseline. It assumes you’ll make the minimum required monthly payment each month for the full 30-year loan repayment term.

The table above is for educational purposes. Your lender should be able to provide you with an exact breakdown of how much you’ll save with points. The more points you purchase, the more you’ll save on interest over the loan repayment term.

Should you buy mortgage points?

There isn’t a single answer to whether buying down your mortgage rate is a good idea; it depends on your situation.

In general, if you’re getting a loan that you plan to keep for a long time or the full term, paying for points is a good idea. Make sure to calculate your breakeven point. If you plan to keep the loan for longer than that, consider paying for points.

If you think you might move in the near future, pay the loan off early, or hope to refinance your mortgage down the road as mortgage rates drop, paying for points isn’t a good idea because you’ll wind up paying more upfront than you’ll save. 6

Alternatives to mortgage points

Mortgage points are one option for home buyers looking to reduce the cost of their mortgage, but it’s not the only way. Consider these alternatives to see if one is a better fit for you.

• Make a larger down payment: If you make a larger down payment on a home, that means that you don’t need to borrow as much money to make the purchase. The amount you borrow also plays a big role in the monthly and total cost of a loan. Larger down payments can also help you avoid paying for mortgage insurance , so there are multiple ways that making a bigger down payment can make your loan more affordable.
• Make extra payments on the loan: When you get a loan, you can make additional payments beyond the minimum required each month. These payments will go toward reducing the principal of the loan and, like making a larger down payment, make it so less interest accrues each month. As a bonus, these payments also help you pay your loan off ahead of schedule.
• Consider refinancing in the future: If interest rates are high when you get your loan, but you predict that they will drop in the near future, you may instead plan to refinance when rates drop. Refinancing involves getting a new loan with a new rate and term and using the funds to pay off your old loan. If you refinance as rates drop, you can reduce the interest rate of your mortgage without having to pay for points.
• Borrow less: The less that you borrow, the less interest will accrue on your loan, and the lower your monthly payment will be. Just because a lender approves you for a high amount does not mean you need to max out the amount on offer. If you can find a cheaper home that you’re happy with, borrowing less will be the best way to save money in the long run.

The bottom line: Weigh all your options before buying mortgage points

Mortgage points let you pay money up front to reduce the interest rate of your mortgage. If you plan to keep your loan for a long time, paying for points is a good way to save money in the long run. However, there are downsides, so consider other options such as refinancing in the future or offering a larger down payment.

If you’re looking for a mortgage and want help navigating the process, you can talk to a Visto Mortgage ® Home Loan Expert and find out what you qualify for .

1 The payment on a $350,000 30-year conventional fixed-rate loan at 5.99% is $2,096.18. The annual percentage rate (APR) is 6.09% and the loan-to-value ratio (LTV) is 80% for the cost of 0.25 points ($875) due at closing. One point is equal to one percent of the loan amount. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid as of January 7, 2026. Some state and county maximum loan amount restrictions may apply.

2 The payment on a $350,000 30-year conventional fixed-rate loan at 5.5% is $1,987.26. The annual percentage rate (APR) is 5.76% and the loan-to-value ratio (LTV) is 80% for the cost of 2 points ($7,000) due at closing. One point is equal to one percent of the loan amount. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid as of January 7, 2026. Some state and county maximum loan amount restrictions may apply.

3 The payment on a $350,000 30-year conventional fixed-rate loan at 5.875% is $2,070.38. The annual percentage rate (APR) is 6% and the loan-to-value ratio (LTV) is 80% for the cost of 0.625 points ($2,187.50) due at closing. One point is equal to one percent of the loan amount. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid as of January 7, 2026. Some state and county maximum loan amount restrictions may apply.

4 The payment on a $350,000 30-year conventional fixed-rate loan at 5.75% is $2,042.50. The annual percentage rate (APR) is 5.94% and the loan-to-value ratio (LTV) is 80% for the cost of 1.25 points ($4,375) due at closing. One point is equal to one percent of the loan amount. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid as of January 7, 2026. Some state and county maximum loan amount restrictions may apply.

5 The payment on a $350,000 30-year conventional fixed-rate loan at 5.625% is $2,014.80. The annual percentage rate (APR) is 5.84% and the loan-to-value ratio (LTV) is 80% for the cost of 1.5 points ($5,250) due at closing. One point is equal to one percent of the loan amount. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid as of January 7, 2026. Some state and county maximum loan amount restrictions may apply.

6 Refinancing may increase finance charges over the life of the loan.

TJ Porter has ten years of experience as a personal finance writer covering investing, banking, credit, and more.

TJ’s interest in personal finance began as he looked for ways to stretch his own dollars through deals or reward points. In all of his writing, TJ aims to provide easy to understand and actionable content that can help readers make financial choices that work for them.

When he’s not writing about finance, TJ enjoys games (of the video and board variety), cooking and reading.

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