Should You Pay Points on a Mortgage? Key Considerations

18 January 2026

When you're in the market for a mortgage, you'll come across a little something called "mortgage points." They can be a bit confusing, but essentially, they are fees you pay upfront to get a lower interest rate on your home loan. Some people swear by them as a money-saving strategy, while others prefer to keep their cash in hand.

So, should you pay points on a mortgage? It depends on a variety of factors, including your financial situation, how long you plan to stay in the home, and your overall loan goals. Let's break it all down so you can make an informed decision.

What Are Mortgage Points?

Mortgage points, also known as "discount points," are optional fees you pay to your lender at closing to lower your mortgage interest rate. In simple terms, you're paying interest upfront in exchange for a lower rate over the life of your loan.

Each point typically costs 1% of your loan amount and usually reduces your mortgage rate by 0.25%. So, if you're taking out a $300,000 mortgage, one point would cost $3,000 and might lower your interest rate from 7% to 6.75%.

There are two types of mortgage points:

- Discount points – reduce your interest rate and lower your monthly payment.
- Origination points – fees lenders charge to process your loan (these don’t lower your rate and are more like administrative costs).

Since we’re talking about whether or not you should "buy down" your interest rate, we’ll focus on discount points.

The Pros of Paying Mortgage Points

Now, why would you want to shell out thousands of dollars upfront? Here are some advantages:

1. Lower Interest Rate

The biggest perk of paying points is that you’ll pay less interest over the life of your loan. A lower rate means lower monthly payments, which can add up to significant savings over time.

2. Increase Monthly Savings

If you plan to stay in your home for a long time, paying points can be a smart move. The longer you stay, the more time you have to benefit from lower mortgage payments, making it a worthwhile investment.

3. Tax Benefits

In some cases, mortgage points may be tax-deductible if you itemize your deductions. As long as you meet IRS requirements, you might be able to deduct the cost of your points as prepaid mortgage interest, which could reduce your taxable income.

The Cons of Paying Mortgage Points

While the benefits sound great, paying points isn’t always the right decision. Here’s why it might not work for you:

1. Large Upfront Cost

If you’re already stretching your budget to cover the down payment, closing costs, moving expenses, and home improvements, coughing up extra cash for mortgage points may not make sense.

2. Break-Even Point Takes Time

There's a break-even period—how long it takes for your monthly savings to equal the upfront cost of the points. If you move or refinance before you hit your break-even point, you could actually lose money.

For example, if paying $3,000 in points saves you $50 per month on mortgage payments, it would take 60 months (5 years) to break even. If you sell or refinance before then, you wouldn’t fully reap the benefits.

3. Better Uses for Your Money

Tying up money in mortgage points might not be the best use of your cash. You could instead:

- Invest it for potentially higher returns.
- Pay down higher-interest debt (like credit cards).
- Keep a larger emergency fund, giving you more financial flexibility.

When Does It Make Sense to Pay Points?

Paying mortgage points isn't a one-size-fits-all decision. Here are a few scenarios where it could be a smart move:

✔ You’re Planning to Stay in the Home Long-Term

If you’re sticking around for at least 5-7 years, paying points can save you a significant amount over time, as you'll have enough time to recoup the upfront cost.

✔ You Have Extra Cash on Hand

If you've got savings beyond your emergency fund, using some of it to buy points could help you reduce your monthly budget in the long run.

✔ Mortgage Rates Are Volatile

If rates are high and you believe they may not drop anytime soon, locking in a lower rate through points could be a strategic move.

✔ You Want a Lower Monthly Payment

If keeping your monthly expenses as low as possible is a priority, mortgage points might help you reduce your financial commitments.

When Is It Better to Skip the Points?

On the flip side, there are many reasons why not paying points makes sense:

❌ You Might Sell or Refinance Soon

If there's any chance you’ll move or refinance within a few years, you may never reach the break-even point.

❌ You’re Strapped for Cash

If coming up with extra money for points is difficult, it may be better to put that money towards other priorities, like home repairs or an emergency fund.

❌ You Qualify for a Low Interest Rate Already

Depending on your credit score and market conditions, you may already be getting a competitive interest rate without needing to buy it down.

Alternative Ways to Lower Your Interest Rate

If paying points isn’t the right move for you, there are other ways to reduce your mortgage interest rate, such as:

✔ Improving Your Credit Score – A higher credit score can help you qualify for better mortgage rates.

✔ Making a Bigger Down Payment – A higher down payment lowers your lender's risk, potentially securing you a lower rate.

✔ Shopping Around for Lenders – Different lenders offer different rates, so compare them before committing.

✔ Choosing a Shorter Loan Term – A 15-year mortgage usually has lower interest rates compared to a 30-year loan.

✔ Negotiating with Your Lender – Sometimes, lenders have flexibility, especially if you're a strong borrower.

The Bottom Line: Should You Pay Mortgage Points?

It all comes down to your personal financial situation and how long you plan to stay in the home.

If you have the upfront cash and plan to live in the home for many years, mortgage points can be worth it since they reduce your long-term costs. But if you think you might sell, refinance, or need the cash for other expenses, it’s probably best to keep that money in your pocket.

Before making a decision, run the numbers. Use a mortgage points calculator to compare different scenarios and speak with a trusted mortgage professional to ensure you make the best choice for your financial future.