Should I buy points on my mortgage?
Buy points only if you will keep the exact loan well past the break-even point — and the real break-even is longer than the simple calculator says. Every rate sheet is one menu read two directions: pay cash upfront for a lower payment (points), or take a higher payment for cash at closing (lender credits). The naive break-even is the upfront cost divided by the monthly savings, but three things stretch it: the money you hand over stops earning interest, refinancing or selling before break-even forfeits the remainder, and elevated rates historically get refinanced within a few years. First-time buyers, who move and refinance soonest, are usually the worst candidates for paying points — and the best candidates for credits.
Last reviewed 2026-08-24
Points and credits are one menu, not two products
A lender’s pricing is a ladder: each step down in rate costs more upfront; each step up pays you more at closing. "Discount points" is the name for climbing down; "lender credit" is the name for climbing up. The spread between the top and bottom of the ladder on the same day can be thousands of dollars of closing cash on an identical loan — which is why you should always ask to see several rate/cost combinations, not the single rate a lender leads with.
The simple break-even — and why it flatters points
Worked example: paying $4,000 to cut a $400,000 loan’s rate by 0.25% saves roughly $65 a month, so the naive break-even is about 62 months. That number assumes the $4,000 would otherwise sit idle (it could be earning interest, or shrinking your loan as extra down payment), that you never refinance or sell, and that a dollar saved in year six is worth a dollar today. Each assumption bends the real break-even further out. Points prepay interest — and prepaying only pays off if the future you prepaid for actually happens.
The refinance-probability problem
When rates are historically elevated, the odds that you refinance within a few years are meaningful — and every refinance resets the break-even clock to zero while the points you paid stay spent. Money taken as a lender credit at closing, by contrast, is banked the moment you close; a later refinance costs you nothing you already pocketed. This asymmetry is why credits tend to win in high-rate environments and points tend to win only for long-hold borrowers in stable-rate environments.
What a point actually buys varies — check, don’t assume
The folk rule that one point buys 0.25% of rate is often wrong in both directions; the real ratio moves with market conditions and where you sit on the pricing ladder. Sometimes a quarter point of rate costs far less than a full point; sometimes it costs more. The only way to know is to see the actual ladder for your scenario on the day you lock — ask for it, and compare the marginal cost of each step, not just the endpoints. See illustrative Ralo pricing
Who each side of the menu fits
Credits fit buyers who are cash-tight at closing, likely to move or refinance within several years, or buying a first home — the group with the shortest median hold. Points fit borrowers with surplus cash, a rate environment they believe is durable, and a realistic long hold: the move-up buyer settling into a fifteen-year house, not the twenty-nine-year-old in a starter. If you cannot confidently say you will hold the loan past the honest break-even, take the credit.
Ralo is an automated mortgage broker — not a lender — that compares multiple lenders from one application, earns a thin commission, and shows rate, APR, and fees upfront. Rates shown anywhere on this site are illustrative examples, not a loan approval, rate lock, or commitment. Available where licensed: California, Colorado, and Texas.