Purchasing Points

Mortgage points allow you to lock in a lower interest rate during the home buying process and pay less in interest on your loan. Before you decide to purchase points, make sure buying points makes sense for your situation.

A mortgage point – sometimes called a discount point – is a fee you pay to lower your interest rate on your home purchase or refinance.

One discount point costs 1% of your loan amount. For example, if you take out a loan for $100,000, then one point will cost you $1,000.

Points are paid at closing, which will be in addition to other closing costs.

For each discount point you buy, your interest rate will be reduced by a set percentage point. The per-point discount you’ll receive varies by lender, but you can generally expect to get a .25% interest rate reduction for each point you buy. Most lenders will cap the number of points you can buy.

Example: Loan Amount = $200,000 at 5.125% (Lender offers 4.75% if you purchase 1.75 points, which will cost $3,500.

If you choose not to buy points, your interest rate will be 5.125% and over 30 years. The total cost of the loan with interest is $391,809.
If you opt to purchase the 1.75 points, you end up paying $375,586 over the life of the loan, saving $16,223 over the 30-year mortgage.

Benefits of Mortgage Points

Buying points may save you serious money, but the upfront cost might not be worth it if you don’t stay in the home long enough to see the savings.
You may lock in a lower monthly payment.
You may save on taxes since points may be tax deductible.

When Should you Buy Mortgage Points?

You want to stay in your home for a long time.
You’ve determined when the breakeven point is.

When Not to Buy Mortgage Points?

You don’t plan to stay in your home for long.
You plan to pay extra on your mortgage payment. This can have a similar effect to purchase points saving money over the life of the loan. See our Early Payoff Calculator
You don’t have the money to buy points.
Your down payment would suffer, putting money down is always a better option.
You plan on refinancing in the near future.