A discount point costs 1% of your loan amount and typically buys down the rate by 0.25% (sometimes less). On a $400K loan, 1 point = $4,000 upfront to save about 0.25% rate, which is roughly $65-$70/month in P&I. Break-even is $4,000 / $65 = 62 months. If you plan to stay at least 62 months and not refinance, points are a small win. If you might sell or refi sooner, do not pay points.
Points math in detail
Exact break-even depends on three inputs: the number of points, the rate improvement per point, and the monthly savings. Run multiple scenarios — lenders price points inconsistently. Some offer 1 point = 0.375% rate cut (much better); some 1 point = 0.125% (much worse). Never pay points without checking alternative lenders.
When points are a clear win
- You plan to stay 7+ years with no refi
- You have the extra cash AND your rate lock budget is not tight
- Rates are at a cyclical high (unlikely you refi lower later)
- The points buy you below the psychological threshold for a future refi (e.g., 6.99% vs 7.125%)
When points are a loss
- You might move in 3-5 years
- Rates are falling — you'll refi out before break-even
- You're stretching for down payment and closing costs
- You could put the same money into principal (saves more interest long-term)
Seller-paid points
If the seller offers a price reduction vs a rate buydown credit, the rate buydown often wins for the buyer. $10,000 off price saves about $65/month on a $400K loan. $10,000 in points on that loan saves about $180/month. The buyer keeps the payment relief forever (or until refi).