Senior Mortgage Advisor & Editor-in-Chief · NMLS #1874256, CFP
Mortgage Points Explained 2026: When to Buy Points, Break-Even Calculator & Lender Comparison
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What Are Mortgage Points?
One point equals 1% of the loan amount. On a $400,000 loan, one point costs $4,000. Each point typically reduces your rate by 0.125% to 0.25%. Calculate your point savings
How Mortgage Points Work: A Real Example
On a $400,000 30-year fixed mortgage, here's how points affect your payment.
| Option | Rate | Monthly Payment | Point Cost | Monthly Savings | Break-Even |
|---|---|---|---|---|---|
| 0 points | 6.500% | $2,528 | $0 | — | — |
| 1 point | 6.250% | $2,462 | $4,000 | $66/month | 5 years |
| 2 points | 6.000% | $2,398 | $8,000 | $130/month | 5.2 years |
| 3 points | 5.875% | $2,366 | $12,000 | $162/month | 6.2 years |
The Break-Even Calculation
The break-even is how long it takes for monthly savings to equal the cost of points. If you sell or refinance before break-even, you lose money. Calculate your break-even
- Formula: Break-Even (months) = Cost of Points / Monthly Savings
- Example: $4,000 / $66 = 60 months (5 years)
- Stay 10+ years → buying points usually worth it
- Move or refinance within 5 years → skip the points
- Factor in opportunity cost — could that cash earn more elsewhere?
When to Buy Points vs When to Skip Them
The decision depends on several factors beyond just the break-even. Compare point pricing from multiple lenders
| Factor | Buy Points If... | Skip Points If... |
|---|---|---|
| Time in home | 10+ years | Under 5 years |
| Rate environment | Rates high, falling slowly | Rates may drop soon |
| Available cash | Plenty after down payment | Tight on cash at closing |
| Loan type | 30-year fixed | 5/1 ARM or short-term |
Negative Points: Lender Credits Explained
Negative points work in reverse — the lender gives you money toward closing costs in exchange for a higher rate. Useful if you're short on cash. Explore lender credit options
| Option | Rate | Lender Credit | Monthly Cost Increase |
|---|---|---|---|
| 0 points | 6.500% | $0 | — |
| -1 point | 6.750% | $4,000 credit | $65/month more |
| -2 points | 7.000% | $8,000 credit | $137/month more |
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Pre-Qualify in 60 Seconds →Discount Points vs Origination Points: Do Not Confuse Them
Discount points are optional — you choose to pay them to buy down your rate. Origination points (or origination fees) are mandatory lender charges for processing your loan and do NOT reduce your rate. Both cost 1% of the loan amount per point, which is why borrowers confuse them.
On your Loan Estimate, discount points appear in Section A as a percentage of the loan amount tied to a specific rate. Origination charges appear separately. A lender advertising 'no points' may still charge a 1% origination fee — always compare the full Section A total, not the marketing label.
| Feature | Discount Points | Origination Points/Fee |
|---|---|---|
| Purpose | Buy down your interest rate | Lender's processing fee |
| Optional? | Yes — your choice | Usually mandatory |
| Lowers rate? | Yes, ~0.125-0.25% per point | No |
| Tax deductible? | Yes (purchase, primary home) | Generally no |
| Negotiable? | Yes — pricing varies by lender | Sometimes |
Are Mortgage Points Tax Deductible?
Discount points on a purchase mortgage for your primary residence are generally deductible in full in the year paid — they count as prepaid mortgage interest. Points on a refinance must be deducted over the life of the loan (a $4,000 point on a 30-year refi deducts ~$133/year).
Requirements for the full deduction: the loan must be secured by your main home, paying points must be customary in your area, the amount must be reasonable, and you must itemize deductions. Seller-paid points are deductible by the buyer in some cases — consult a tax professional for your situation.
Temporary Buydowns: The 2-1 and 3-2-1 Alternative
A temporary buydown lowers your rate for the first 1-3 years, then it steps up to the note rate. A 2-1 buydown cuts the rate 2% in year one and 1% in year two; a 3-2-1 spreads it over three years. Unlike permanent points, temporary buydowns are usually funded by the seller or builder as a concession — not by you.
In 2026's market, seller-paid 2-1 buydowns are one of the most negotiated concessions. You qualify at the full note rate, but your first-year payment reflects the bought-down rate. If rates fall during the buydown period, you can refinance before the step-up — making it potentially free money. Compare buydown and point options
| Structure | Year 1 | Year 2 | Year 3 | Year 4+ |
|---|---|---|---|---|
| 3-2-1 buydown | Rate -3% | Rate -2% | Rate -1% | Full note rate |
| 2-1 buydown | Rate -2% | Rate -1% | Full note rate | Full note rate |
| 1-0 buydown | Rate -1% | Full note rate | Full note rate | Full note rate |
| Permanent points | Reduced rate | Reduced rate | Reduced rate | Reduced rate |
How to Shop Points: The Rate-Point Matrix
Every lender prices the rate-point tradeoff differently. One lender's 6.25% with 1 point might be another's 6.375% with zero points. The only way to compare is to request the same structure from each lender — ask every lender for their par rate (zero points) AND their pricing at 1 point, then compare apples to apples.
Watch for lenders who quote low rates with hidden points buried in the fine print. The Loan Estimate standardizes this: Section A shows exactly what you pay for the quoted rate. Compare Loan Estimates from 3+ lenders on the same day — rate-point pricing shifts daily with the market.
- Request identical structures: par rate + 1-point rate from each lender
- Compare Loan Estimate Section A totals, not advertised rates
- Same-day quotes only — pricing moves with the bond market
- Ask about float-down options if you lock with points
- Negotiate: lenders can shade point pricing to win your file
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Senior Mortgage Advisor & Editor-in-Chief
15+ years as a licensed mortgage advisor (NMLS #1874256) and CFP. Former senior underwriter at Rocket Mortgage. Featured in Forbes and Bankrate.
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