Should You Pay Points to Buy Down Your Rate?

One discount point equals 1% of your loan amount, paid at closing, and it buys your interest rate down — typically by about 0.125% to 0.25% per point, though pricing changes daily and varies by lender, loan type, and credit profile. On a $500,000 loan, one point is $5,000. Points are prepaid interest, which can be tax-deductible on a purchase — ask your tax advisor.

Take the extra upfront cost of the lower-rate option (its fees and points minus any lender credit, compared to the cheaper-upfront option) and divide it by the monthly payment savings the lower rate gives you. The result is the number of months it takes to recoup the cash. If you'll keep the loan longer than that, buying down pays off; if you'll sell or refinance sooner, it doesn't. The calculator above does this automatically for up to three scenarios.

Often, yes. Points only pay off if you keep the loan past the break-even month, which is frequently 3 to 5 years out. In a falling-rate environment, there's a good chance you'll refinance into a lower rate before that break-even arrives — and if you do, the points you paid never earned their money back. Taking a higher rate with a lender credit toward closing costs keeps cash in your pocket and preserves your option to refinance cheaply later. The right call depends on your specific break-even versus how long you'll actually hold the loan.

Fees and points are cash you pay at closing to get a lower rate. A lender credit is the opposite: the lender pays some of your closing costs in exchange for a slightly higher rate. Points lower your monthly payment but cost cash today; a lender credit raises your payment slightly but reduces the cash you need to close. This calculator nets them together ("net cash at closing") so you can compare any mix of the two across scenarios.

Use the optional current-loan fields above. Enter your existing balance and monthly payment, and we'll show, for each scenario, how much you'd save versus your current payment and how many months it takes to recoup the costs. On a refinance the break-even question is the same as on a purchase — but because you may refinance again, keeping upfront costs low (or taking a lender credit) is frequently the stronger move unless the break-even is very short.

Most lenders let you buy your rate down by roughly 1% to 1.5% total, which can take two to four points depending on daily pricing. There are diminishing returns — each additional point usually buys a smaller rate reduction. Qualified-mortgage rules also cap total points and fees on many loans. We'll show you the full buy-down grid for your file so you can see exactly where the break-even stops making sense.

On a home purchase, discount points are generally deductible in the year you pay them because the IRS treats them as prepaid mortgage interest, subject to conditions. On a refinance, points typically must be deducted gradually over the life of the loan. Rules have exceptions — confirm with a tax professional for your situation. This calculator does not model the tax benefit, so the real break-even may be slightly faster than shown.

The math is exact for principal and interest: it uses standard amortization for each rate, nets your fees against lender credit, and compares the total cash you'd spend over the horizon you set — upfront closing cash plus every monthly payment. That's the same cash-flow basis as the break-even, so the "best value" and the break-even never disagree. It excludes taxes, insurance, and mortgage insurance because those are identical across scenarios and don't affect the buy-down decision. For a lender-verified comparison with today's live pricing, request a rate quote and we'll shop it across 20+ wholesale lenders.