Discount points (often just “points”) are prepaid interest you pay at closing to buy a lower note rate. One point is typically 1% of the loan amount. Paying points can make sense if you keep the loan long enough for the monthly savings to exceed the upfront cost—and a poor deal if you refinance or sell early. This guide is only that rate-vs-points math. It is not a full mortgage-shopping playbook.
Compare every offer with the same discipline as Comparing financing offers. Why APR and note rate diverge when fees and points appear: APR vs interest rate.
Points vs origination vs “lender credits”
| Item | What it usually is | Effect |
|---|---|---|
| Discount points | Prepaid interest to lower the rate | Higher cash at closing, lower note rate / often lower APR |
| Origination / underwriting fees | Lender charge to make the loan | Higher cost; may raise APR (origination fees) |
| Lender credits | Lender gives closing credit in exchange for a higher rate | Lower cash to close, higher payment |
A Loan Estimate from a bank, credit union, or mortgage company (Rocket Mortgage, local brokers, big banks, and peers) should show points and credits in the closing-cost tables. Read the numbers, not the slogan “buy your rate down.”
Break-even months (the only math you need here)
Simple break-even:
Upfront points cost ÷ monthly payment savings ≈ months to break even
If you expect to keep the loan longer than that break-even, points may pencil. If you might move or refinance sooner, prefer fewer points or a lender credit—even if the rate is slightly higher.
Worked example: $320,000 loan
Loan amount $320,000, 30-year fixed. Illustrative quotes (payment interest-only of principal-and-interest; taxes/insurance/escrow ignored here):
| Option | Points paid | Note rate | Est. P&I | Upfront points $ | vs 0-point payment |
|---|---|---|---|---|---|
| A: 0 points | 0 | 6.50% | ~$2,023 | $0 | baseline |
| B: 1 point | 1.0 | 6.25% | ~$1,971 | $3,200 | saves ~$52/mo |
| C: 2 points | 2.0 | 6.00% | ~$1,919 | $6,400 | saves ~$104/mo |
Break-even:
- B vs A: $3,200 ÷ $52 ≈ 62 months (~5.2 years)
- C vs A: $6,400 ÷ $104 ≈ 62 months (same ballpark here; real price sheets vary)
If Jordan expects to sell or refinance in three years, paying $3,200–$6,400 for points that need five-plus years to break even is a bad trade. If Jordan plans to stay put for a decade and cash at closing is comfortable after the down payment, points can be rational.
Always recompute with your Loan Estimate payment and the exact points line—do not reuse this table.
What this guide deliberately skips
- Full lender shopping, underwriting overlays, and first-time programs
- Whether to choose 15- vs 30-year, ARM vs fixed, or FHA vs conventional
- Tax deductibility of points (ask a tax professional; rules depend on facts)
After you close, monthly escrow for taxes and insurance is a separate cash-flow item—see How escrow works for homeowners. Points math does not replace reading the full Closing Disclosure—walkthrough: How to read a mortgage Closing Disclosure.
Questions to ask on each Loan Estimate
- Exact dollars for discount points (and whether they are for this rate lock)?
- Note rate and APR with and without points?
- Monthly P&I difference in dollars?
- Can the same lender quote 0-point, 1-point, and credit options side by side?
- Lock period and whether re-lock fees change the points price?
Checklist
- Get side-by-side quotes that change only points/credits when possible.
- Compute break-even months with real P&I deltas.
- Compare break-even to how long you realistically keep the loan.
- Check cash-to-close impact against your reserves—do not starve emergency cash.
- Confirm APR and fee lines so points are not double-counted with origination.
- Re-run the math if the lock or loan amount changes.
Educational only. Not mortgage, tax, or financial advice, and not an offer of credit. Rate sheets, APR, and point pricing vary by lender, credit, and market day; rely on your Loan Estimate and Closing Disclosure.