Should You Buy Discount Points? Run the Math
Discount points are one of the few places in a mortgage where you get to make a genuine investment decision: pay money now for a lower rate later. Whether that trade wins depends on a single number — your break-even — and it takes about two minutes to calculate.
What a point actually buys
One discount point costs 1 percent of your loan amount and typically lowers your rate by somewhere around a quarter of a percent — though the exact trade varies day to day with the market. On a $350,000 loan, one point costs $3,500.
Points are different from the origination fees on your Loan Estimate. Points are optional and buy something; make sure you know which is which when comparing quotes.
A point is a purchase, not a fee. Always ask what rate you get with zero points as your baseline.
The two-minute break-even math
Divide the cost of the points by the monthly payment savings. That is your break-even in months. If $3,500 in points saves you $60 a month, you break even at 58 months — nearly five years. Keep the loan longer than that and the points earn their keep; sell or refinance sooner and you paid for a discount you never fully collected.
Be honest about the horizon. The average homeowner moves or refinances more often than they expect, and every refinance resets the clock to zero.
Points cost divided by monthly savings equals break-even months. If your realistic stay is shorter, skip the points.
When points shine, and the reverse trade
Points make the most sense for buyers with high confidence they will stay put — the long-term family home, the forever house — and with cash left over after closing reserves are covered. Never drain your emergency fund to buy a rate.
There is also the opposite move: lender credits. Take a slightly higher rate and the lender pays part of your closing costs. For buyers who are cash-tight at closing or expect to refinance within a few years, credits often beat points. Also worth pricing: in some markets, a seller-paid temporary buydown or seller credit toward points can be negotiated into the contract.
The dial turns both ways. Cash-rich and staying? Consider points. Cash-tight or short horizon? Consider credits.
We show every client the zero-point rate, the bought-down rate, and the credit option side by side with the break-even printed on each. Want yours? Call Steve Barton at 214.673.1319 or visit corecommunitymortgage.com.
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