Mortgage Points Explained 2026: Should You Buy Down Your Rate?

Last updated: October 24, 2026 · Written by Emily Watson, Insurance Analyst

What Are Mortgage Points?

Mortgage points (also called discount points) are prepaid interest you pay at closing to lower your mortgage interest rate. It's a way to "buy down" your rate upfront — pay more money now, and pay less every month for the life of the loan.

One point = 1% of your total loan amount. On a $300,000 mortgage, one point costs $3,000. Typically, one point buys you a 0.25% reduction in your interest rate (though this varies by lender and market conditions).

Two Types of Points

1. Discount Points (What We're Talking About Here)

Discount points are prepaid interest. They're tax-deductible as mortgage interest. You pay them at closing, and they permanently lower your interest rate for the entire loan term.

2. Origination Points

Origination points are fees your lender charges to process your loan. They're not prepaid interest, they're just a fee. You should never pay origination points — many lenders offer no-cost loans with zero origination.

How the Math Works

Let's run a real example. You're taking out a $300,000 30-year fixed mortgage. Your lender offers you two options:

• Option A: 7.00% interest rate, 0 points, $0 closing cost for points
• Option B: 6.75% interest rate, 1 point, $3,000 at closing

Monthly Payment Comparison

	Option A (7.00%, 0 points)	Option B (6.75%, 1 point)
Monthly principal + interest	$1,996	$1,946
Monthly savings	—	$50/month
Upfront cost at closing	$0	$3,000

The Break-Even Point

To find the break-even point, divide the upfront cost by the monthly savings:

$3,000 ÷ $50/month = 60 months = 5 years

If you stay in the house for less than 5 years, you lose money on the points. If you stay longer than 5 years, every month after that you're saving $50 for free. Over 30 years, that's $18,000 in total savings (minus the $3,000 upfront cost, so net $15,000 saved).

When Buying Points Makes Sense

• You know you'll stay in the house for at least 7-10 years (well past break-even)
• You have extra cash at closing and want to lock in the lowest possible rate
• You plan to keep the mortgage for the full 30 years and won't refinance
• You're in a high tax bracket and want the mortgage interest tax deduction

When Buying Points Does NOT Make Sense

• You think you'll move or refinance within 5 years (you won't hit break-even)
• You're stretching your down payment to buy points — keep the cash as emergency fund
• Mortgage rates are expected to drop soon and you'll refinance in 1-2 years
• You'd have to borrow the money to pay for the points (that defeats the purpose)

Other Things to Know About Mortgage Points

Points Are Tax-Deductible

Discount points are considered prepaid mortgage interest, so they're tax-deductible on your federal tax return. In our example above, the $3,000 you paid in points would save you about $660 in federal taxes if you're in the 22% bracket. That brings your real break-even point down to about 4 years instead of 5.

You Can Buy Multiple Points

Most lenders let you buy up to 3-4 points. Two points on our $300k loan would cost $6,000 and lower your rate by another 0.25% (to 6.50%). But the break-even math gets worse as you buy more points — the more you pay, the longer it takes to recoup.

Lender Credits Are the Opposite of Points

If you don't want to pay closing costs, you can take a lender credit (negative points). The lender gives you a credit toward closing costs in exchange for a higher interest rate. This is great if you're short on cash at closing, or if you know you'll refinance or move in a couple years.

Should You Buy Points in 2026?

Mortgage rates have been hovering around 6.5-7.5% in 2026, and most experts expect rates to slowly drop over the next 2-3 years. That means most people who buy points today will probably refinance within 3-5 years — before they hit break-even. In this market, it usually makes more sense to take the no-points rate and plan to refinance when rates drop.

Use our free mortgage calculator to compare different points options and see your break-even point for your specific loan.

Disclaimer: All results are estimates for informational purposes only and do not constitute financial, tax, or legal advice. Always consult a qualified professional before making financial decisions. See our data and methodology page for sources and calculations.