How points work
Discount points are prepaid interest: you pay the lender upfront, and in return get a lower rate for the life of the loan. One point costs 1% of the loan amount. How much each point lowers the rate depends on the lender and the market, so compare Loan Estimates with and without points.
Break-even (months) = cost of points ÷ monthly payment saved
Worked example
On a $350,000 loan, one point costs $3,500 and lowers the rate from 6.75% to 6.5%. The monthly payment drops from $2,270.09 to $2,212.24, a saving of $57.86.
It takes 61 months, about 5 years, for the savings to repay the points. Keep the loan 7 years and you come out $1,360 ahead; sell or refinance after 3 years and you lose money on them.
Things to know
- Points favor long stays. If you might move or refinance within a few years, the zero-point loan is usually cheaper.
- Lender credits are the reverse: a higher rate in exchange for lower closing costs, which can suit short stays.
- Cash matters too. Money spent on points isn't available for a bigger down payment or your emergency fund.
- Thinking of refinancing later? The refinance calculator shows when a new loan pays off.
Questions people ask
How much does one point lower the rate?
It varies by lender and over time, so there's no fixed amount. Ask each lender for its rate with zero, one and two points, and put the numbers in the calculator above.
Are points tax-deductible?
Points on a mortgage to buy your main home can often be deducted as mortgage interest if you itemize. IRS Publication 936 covers the rules.
Sources
- Consumer Financial Protection Bureau: how should I use lender credits and points?
- Consumer Financial Protection Bureau: data spotlight, trends in discount points
Reviewed September 28, 2026 by The Dollars World team. How we build and check our calculators · Our data and formulas. This is general information, not financial advice.