Mortgages & Financing
Are mortgage points worth paying?
By Steve Lockhart
The short answer
A discount point is 1 percent of the loan amount paid at closing, and it buys your interest rate down by a small amount, often around a quarter of a percentage point. Points are a straightforward trade: cash today for a lower payment for the life of the loan.
Full answer
A discount point is 1 percent of the loan amount paid at closing, and it buys your interest rate down by a small amount, often around a quarter of a percentage point. Points are a straightforward trade: cash today for a lower payment for the life of the loan. The question is whether the payoff arrives while you still hold the home. The math: divide the cost of the points by the monthly savings the lower rate produces, and you get the break even in months. If you expect to stay past that line, the points pay for themselves and then save. If you plan to move or refinance sooner, the points usually do not come back. Your lender must show you the rate with and without points before you decide, and we always start from the no point version. A low advertised rate that assumes a basket of points is not a deal, it is a rate with a purchase price attached.
Go a little deeper
Frequently asked
Questions people often follow up on
How is the break even calculated?
Divide the dollar cost of the points by the monthly savings from the lower rate. If the points cost $4,000 and the payment drops $80 a month, the break even is 50 months. Every month you hold the loan past that point, the points are working for you. That is the whole equation.
Can I buy points with funds from the seller?
Often yes. Seller concessions can cover points within the loan program limits, so the rate reduction comes out of the negotiation instead of your cash. The loan estimate shows the numbers either way, and we compare the scenario that fits your offer.
Are points tax deductible?
Points on a primary mortgage are often treated as deductible interest, but the rules have changed over the years and depend on your situation. The loan math is mine to run; the deduction question belongs to your tax professional. Bring them in before closing, not after filing.
The Lockhart Method
The Lockhart Method
Your Home | My Strategy | Proven Results
My strategy: never buy points because it sounds wise. We run the break even against how long you expect to hold the loan, and the no point rate is always the baseline. When the math favors the points we take them, and when it does not we keep the cash.
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