Are Mortgage Points Worth It? Compare the Break Even Period

Compare matching loan offers

Use the same loan amount, term, lock assumptions and pricing date. One point equals one percent of the loan amount, but it does not buy a fixed rate reduction. Ask for the actual cost and payment for each option.

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Mortgage points break-even: a hypothetical example

If one option costs $3,000 more upfront and reduces principal and interest by $75 a month, the simple break even is 40 months. That comes from $3,000 divided by $75. If you sell or refinance before then, the payment reductions alone would not recover that extra cost.

Know what the shortcut leaves out

Two loans can have different principal balances at the same date. Upfront money also has other possible uses. Fees, credits and financed costs can complicate the comparison. Review total outlay and balances rather than treating the simple month count as a complete return calculation.

Protect your cash reserve

A lower payment can be appealing while the upfront cost leaves too little accessible cash. Compare buying points with keeping funds available. Ask a tax professional about your situation instead of assuming a tax deduction makes the choice better.

Consider the opposite tradeoff too

Lender credits may reduce upfront cost in exchange for a higher rate. Compare the complete offers and a realistic holding period. Neither points nor credits are automatically the best choice for every borrower.

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