Should You Buy Mortgage Points? What Reddit Gets Right, and What It Misses

If you ask r/Mortgages whether to buy points, you'll get two camps within the hour. One says never: rates will fall, you'll refinance, and the money is gone. The other says do the break-even math and buy if you'll stay past it.

Both camps are partly right. I've been originating loans since 2003, and the advice I see there is better than most of what's on TV. But it usually skips the one question that actually decides it.

What a point is

A discount point is prepaid interest. One point costs 1% of the loan amount and lowers your rate by an amount that varies by lender and by day. It is not a fixed quarter-percent, even though you'll often read that.

Don't confuse discount points with origination points. Origination charges are a fee for the loan itself and don't lower your rate. On your Loan Estimate, discount points are listed separately in Section A.

What Reddit gets right

The break-even calculation is the correct starting point. Divide what the points cost by what they save you each month. That's how many months you need to keep the loan before you come out ahead.

Here's a hypothetical. On a $400,000, 30-year loan, say 6.5% costs nothing extra and 6.25% costs one point, or $4,000. Principal and interest drop by about $65 a month. $4,000 divided by $65 is roughly 61 months, just over five years.

The common Reddit rule, "only buy if you break even in two to three years," would say no here. In a market where a refinance looks likely, that rule is sensible.

What Reddit usually misses

The question isn't how long you'll own the house. It's how long you'll keep this loan. A refinance, a sale, or a move ends the loan, and any unrecovered points go with it.

So the real decision is a bet on rates. If you think there's a good chance rates fall enough to refinance within five years, points on a five-year break-even are a poor bet. If you'd keep this rate no matter what, they can be a good one.

Two other things I see left out:

• A refinance isn't free. Closing costs on a refinance can run a few thousand dollars. "I'll just refinance later" has its own break-even.
• Seller or builder money changes the math. If a seller credit is paying for the points, you're not risking your own cash. That's a different decision from writing the check yourself.

What I tell clients

I start every points conversation with three numbers: the par rate (zero points), the cost and savings of each step down, and the break-even in months. Then we talk honestly about how long you'll keep the loan.

If you're likely to refinance or move, I'd usually skip points or look at a temporary buydown instead. Our Fed rate hike post explains how 2-1 and 3-2-1 buydowns work. If you're staying put and the break-even is short, points can make sense.

You can run your own numbers with our refinance break-even calculator, or see our buydown options.

FAQ

How much does one mortgage point cost?

One point equals 1% of the loan amount. On a $400,000 loan, that's $4,000. How much it lowers your rate varies by lender and by day.

What's a good break-even period for buying points?

It depends on how long you'll keep the loan, not just the house. Many brokers use two to three years as a rule of thumb when a refinance looks possible. A longer break-even can still work if you'd keep the loan regardless of rates.

Are mortgage points tax-deductible?

Often, yes, under IRS rules for a primary home purchase, but there are conditions. Ask your tax advisor; I'm not one.

Can the seller pay for my points?

Yes. Seller credits can usually be applied to discount points, within the limits set by your loan program.

The $400,000 example is hypothetical and for illustration only. It is not a rate quote.