A discount point costs 1 percent of your loan amount upfront and typically lowers your rate by roughly a quarter percent. Whether that trade is worth it comes down to one number: how long you plan to keep the loan. If you will stay long enough to pass the breakeven point, points can save real money. If you might sell or refinance sooner, they usually cost more than they save.
How the math actually works
On a $400,000 loan, one point costs $4,000 upfront. If that point lowers your rate enough to save roughly $65 a month, the breakeven point lands around 61 months, just over five years. Stay in the home past that point and you come out ahead. Sell or refinance before it and you would have been better off without the points.
When paying points makes sense
- You are confident you will keep the loan for at least five to seven years
- You have the cash available without stretching your down payment or reserves thin
- You are not planning a near-term refinance that would reset the math
When it does not make sense
- You expect to sell or refinance within a few years
- Paying points would leave you with little cash reserve after closing
- Rates are widely expected to drop soon, which could make a near-term refinance likely regardless of your plans
The math most people skip is simple: divide the cost of the points by your monthly savings, and that tells you exactly how many months until it pays off. Compare that number honestly against how long you actually plan to stay.
Common mistakes with discount points
- Paying points without knowing your breakeven number. Points are only a good deal if you actually calculate the payback period first.
- Assuming points always cost 1 percent for a quarter point rate reduction. The exact ratio varies by lender and market conditions, so it is worth confirming the real numbers on your specific loan.
- Not considering a seller-paid points negotiation. In some markets, asking a seller to cover discount points as part of the offer can make this decision a lot easier.
Frequently asked questions
One point equals 1 percent of your loan amount, so on a $400,000 loan, one point costs $4,000. The exact rate reduction it buys varies by lender and market conditions.
In many cases yes, as part of a negotiated seller concession, subject to limits based on your loan program and down payment amount.
Usually not. If you expect to refinance within a few years, paying points upfront rarely has time to pay for itself before the loan changes anyway.
Considering paying points on your loan? Send me your loan amount and how long you plan to stay, and I will calculate your real breakeven number.
This article is general education, not a commitment to lend or an offer of credit. Program availability, terms, rates, and qualification guidelines vary by lender and are subject to change; all loans are subject to underwriting and final approval. Market figures are approximate and change over time. For guidance specific to your situation, reach out directly. Garrett Potz, NMLS #631592 · Affinity Home Lending, Company NMLS #1181151 · Equal Housing Lender.