Discount points are prepaid interest: you pay cash now to lower the rate for the life of the loan. On a $400,000 loan, buying the rate from 6.71% down to 6.46% for one point costs $4,000 and saves $66 a month. That takes 61 months — just over five years — to recover. Keep the loan longer and points win; sell sooner and they do not.
The break-even, worked
One discount point is one percent of the loan amount, paid at closing, in exchange for a lower note rate. How much lower is set by the lender and varies week to week — there is no fixed exchange rate between points and rate.
Start from the Freddie Mac 30-year average of 6.71% for the week ending September 3, 2026, on a $400,000 loan.
Held to term, the same trade returns $19,762 net of the point — the total interest saved over thirty years less the $4,000 paid. That is the number lenders quote. The 61 months is the number that should actually decide it.
| No points | One point | |
|---|---|---|
| Rate | 6.71% | 6.46% |
| Monthly payment | $2,584 | $2,518 |
| Cash at closing | $0 | $4,000 |
| Break-even | — | 61 months |
| Net saving if held 30 years | — | $19,762 |
Computed by this calculator at the PMMS 30-year average for the week ending September 3, 2026.
The question that actually decides it
Everything reduces to one estimate: how long will you keep this exact loan? Not how long will you own the house — how long before you sell, refinance, or pay it off. Points do not survive a refinance.
Against a 61-month break-even, that makes the decision unusually clean.
- ·Confident of ten years or more: points are straightforwardly good. You clear break-even at year five and collect $66 a month for the rest.
- ·Likely to move or refinance within five years: points are a loss. You will have paid $4,000 to collect less than that.
- ·Genuinely unsure: lean against. The no-points loan is the more flexible position, and flexibility has value that this arithmetic does not price.
- ·Rates are unusually high and may fall: lean against, harder. Points are a bet on not refinancing, and a rate decline is precisely when you would want to.
Note also what the break-even is measured in. It is 61 months of the loan surviving, not 61 months of you owning the house — a distinction that matters if you might recast, take a HELOC, or move the mortgage for any reason.
The exchange rate is the whole deal
A point always costs one percent of the loan. What varies — and what lenders do not advertise consistently — is how much rate you get for it. That single variable moves the break-even more than anything else on this page.
| Rate reduction | Cost | Monthly saving | Break-even |
|---|---|---|---|
| 0.125 points | $4,000 | $33 | 121 months (10.1 yr) |
| 0.250 points | $4,000 | $66 | 61 months (5.1 yr) |
| 0.375 points | $4,000 | $99 | 41 months (3.4 yr) |
| 0.250 points | $8,000 | $66 | 122 months (10.2 yr) |
| 0.500 points | $8,000 | $131 | 61 months (5.1 yr) |
Computed by this calculator. Break-even is the cost divided by the monthly saving, rounded up.
Read the top three rows together. The same $4,000 buys a break-even anywhere from 3.4 years to 10.1 years depending purely on how generous the lender's rate sheet is that week. A ten-year break-even is a bad deal for almost everybody; a 3.4-year break-even is good for most people who are buying a home to live in.
The bottom two rows make the companion point: cost and reduction scale together, so two points at half a point of rate reduction breaks even at exactly the same 61 months as one point at a quarter. Doubling the spend does not change the timeline — it changes how much is at stake if you are wrong about how long you will keep the loan.
So the question to put to a lender is not "how much are points?" — the answer is always one percent — but "how much rate does one point buy on this loan today?" Then compute the break-even and compare it against your own horizon. Anything past about seven years deserves real scepticism.
What else the $4,000 could do
Points compete for the same cash as everything else at closing, and the comparison is rarely made explicitly.
- ·A larger down payment. Putting $4,000 toward the down payment instead reduces the balance and, if it crosses 20% equity, may remove mortgage insurance entirely — frequently a larger monthly saving than the points buy.
- ·Closing-cost coverage. Cash spent on points is cash not available for reserves, and lenders assess reserves.
- ·Higher-rate debt. At 6.71% the mortgage is not the most expensive money most borrowers owe.
- ·Nothing at all. Keeping $4,000 liquid after closing is a defensible use of it, particularly for a first purchase where the first year brings unbudgeted costs.
A tax point, since points are prepaid interest: their treatment falls under IRS Publication 936, which governs the home mortgage interest deduction on the first $750,000 of acquisition debt ($375,000 married filing separately). Whether points are deductible in the year paid or must be spread across the loan term depends on the circumstances of the loan, so this is a question for a tax preparer rather than a calculator.
One mechanical caution. Some lenders quote a rate that already includes points and present it beside a competitor's no-point rate. Always compare rate and closing cost together — that is what our APR calculator is for.
The one question to put to the lender
Almost everything on this page collapses into a single request, and it is worth making it precisely.
Ask: "What is the rate with zero points, and what is the rate with one point?" Then compute the break-even from those two numbers rather than from the lender’s framing of the saving. The answer varies by lender and by week, and a lender who is competitive on the no-point rate is not automatically competitive on the point-buying exchange rate.
Ask for it in writing, on the same day, for the same loan amount and term. Rate sheets move daily, so a no-point quote from Monday and a with-points quote from Thursday are not a comparison. The whole decision rests on the gap between those two numbers, and the gap is only meaningful when both are priced at the same moment.
Methodology
Payments use the standard amortisation formula on the loan amount, at the with-points and without-points rates you enter, over the full term. Monthly saving is the difference between the two payments; break-even is the cost of the points divided by that saving, rounded up to a whole month. Net saving over the term is the difference in total interest less the cost of the points. Where the with-points payment is not lower, this calculator returns a sentinel rather than a break-even, because there is none. The example rates are the Freddie Mac PMMS averages for the week ending September 3, 2026 and are a national weekly average, not a quote.
Sources
- Freddie Mac — Primary Mortgage Market Survey (week ending September 3, 2026) — accessed 2026-09-05
- IRS — Publication 936, Home Mortgage Interest Deduction — accessed 2026-09-05