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Are Mortgage Points Worth It?

Are mortgage points worth it? Only if you keep the loan past the month they overtake putting the same cash toward a bigger down payment.

Example numbers

7 years

30 years

Result

The verdictfrom an example

Buy the points if you keep the loan 5 years, 5 months or longer. Over the 7 years you expect to keep it, they leave you $1,954 ahead of putting the same $6,400 down.

Worked on $320,000 at 6.75%, or 6.25% for 2 points ($6,400), kept 7 years. Change anything below to use yours.

Monthly payment with points
$1,970.30
Monthly payment with the bigger down payment
$2,034.00
Points beat the bigger down payment from
Month 65

The figures behind it

Monthly payment with points
$1,970.30
$6,400 of points for 6.250%.
Monthly payment with the bigger down payment
$2,034.00
$6,400 less borrowed at 6.750%.
Points beat the bigger down payment from
Month 65
The points first pull ahead in this month.
Over the 7 years you keep it
+$1,954
Points ahead of putting the same cash down.
If you keep it to the end
+$22,941
Points against the bigger down payment over the full 30 years.

What each option has cost you so far

What each option has cost you so farBuy points ends at $396K. Bigger down payment ends at $419K. Use the left and right arrow keys to read each year. The same figures appear in the payment schedule below.$0$100K$200K$300K$400K$500KToday51015202530Points pull aheadyear 5, month 5●■● $396K■ $419K

Years from today

Buy pointsBigger down payment

Hover or tap the chart to read any year.

Payment scheduleShow
ItemBuy pointsBigger down payment
Loan amount$320,000$313,600
Interest rate6.250%6.750%
Extra cash at closing$6,400$6,400
Monthly payment$1,970.30$2,034.00
Interest over the 7 years you keep it$133,612$141,966
Interest over 30 years$389,303$418,644
Payback against buying no pointsMonth 61—

What this result assumes

  • Selling or refinancing before the points pull ahead forfeits them. The cash in a bigger down payment comes back to you as equity when you sell.
  • Cost is measured as the amount borrowed plus the interest charged, which is exactly the cash handed over plus the balance still owed. Adding the outstanding balance separately would count it twice.
  • The lower payment from points is not assumed to be invested. The difference in payments is counted at face value.
  • Escrowed property tax, insurance and PMI are excluded. If the bigger down payment takes you to 20% down and removes PMI, that favours it, and this page does not count it.

Points are fees paid at closing, 1% of the loan each, for a lower rate. Enter your lender’s quote and how long you expect to stay.

Methodology

Reviewed by Acun Özdilek

The real choice at closing

At closing, the cash for points can go to one of two places. It can buy a lower rate, or it can go into the down payment so you borrow less at the higher rate. This page spends the same cash both ways and compares the cost.

Two break-even numbers

The payback against buying no points divides the cost of the points by the monthly saving against buying no points at all. On the default figures that is month 61. The head-to-head break-even compares points with the bigger down payment instead. On the same figures it is month 65. The second number decides the choice. Depending on the loan, it can land before or after the first.

How cost is counted

Points are spent for good. A down payment stays yours as equity. So the page adds up interest charged so far for each option and subtracts the cost of the points from the points side. Every schedule is rounded to the cent each month.

Assumptions

  • The rate is fixed and the payment level for the whole term.
  • Points are paid in cash at closing.
  • Escrowed property tax, insurance and PMI are excluded.
  • The difference in monthly payments is not invested.
  • Any tax deduction for points is ignored.
  • No prepayment penalty applies.
  • The rate with points is the one on your lender’s quote.

Sources

Common questions

How do I know if mortgage points are worth it?

Compare how long you expect to keep the loan with the month the points overtake a bigger down payment. Keep it longer and the points win; sell or refinance sooner and the down payment wins.

Is it better to buy points or put more money down?

It depends on how long you keep the loan. On the default figures, points pull ahead after 5 years, 5 months, and over 7 years they are $1,954 ahead of putting the same $6,400 down.

What happens to my points if I refinance or sell early?

You lose whatever the points had not yet earned back, because the lower rate ends with the loan. If you might refinance soon, the refinance calculator shows how long a new loan takes to pay back its costs.

Why is this break-even different from the one my lender quotes?

The usual points payback compares points with doing nothing. This page compares them with putting the same cash down, which also lowers your payment. The two answers can differ: on the default figures the payback against buying no points is month 61 and the head-to-head break-even is month 65.

Do points change my APR?

Yes. Points are a finance charge, so they are built into the APR on your Loan Estimate. The APR calculator shows how.

Should I put more down to avoid PMI instead?

This page does not model PMI. If the bigger down payment would remove it, that favours the down payment beyond what is shown here. The mortgage calculator includes PMI in the monthly payment.

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