What discount points are
A mortgage "discount point" costs 1% of your loan amount and buys a lower interest rate — typically around 0.25% off per point, though it varies by lender. On a $300,000 loan, one point costs $3,000. You're essentially pre-paying interest in a lump sum to get a smaller rate for the life of the loan.
It all comes down to break-even
Points are worth it only if you keep the loan long enough for the monthly savings to repay their upfront cost. The math is simple: break-even months = cost of points ÷ monthly savings. If two points cost $6,000 and save $95/month, you break even in about 63 months (5.3 years). Stay past that and points win; sell or refinance sooner and you've lost money.
When points make sense
- You'll keep the mortgage a long time — well beyond break-even. The longer you hold, the more the lower rate compounds in your favor.
- You have spare cash that isn't better used on the down payment (to avoid PMI) or higher-return goals.
- Rates are unlikely to fall soon — otherwise you might refinance before break-even and waste the points.
When to skip them
- You might move or refinance within a few years — you won't recoup the cost.
- The cash is better spent reaching 20% down (removing PMI often beats buying points) or clearing higher-rate debt.
- You're stretching to afford the home — paying points drains the reserves you'll want for emergencies.
The bottom line
Points are a bet that you'll stay put. Run your break-even, compare it honestly to how long you realistically expect to keep the loan, and remember the alternatives — a bigger down payment or simply keeping the cash. If you'll hold the mortgage for the long haul and have money to spare, points can be a solid, low-risk saving; otherwise, keep your cash. Pair this with the mortgage calculator to see the full payment picture.