Discount points are prepaid interest: you pay a fee up front to lower your rate for the life of the loan. Whether that's smart depends entirely on one thing — how long you'll actually keep the loan.
How points work
One point typically costs 1% of your loan amount and lowers your rate by a set amount. On a $400,000 loan, a point is about $4,000. In exchange, your monthly payment drops by some amount each month.
The break-even question
Divide the cost of the points by the monthly savings, and you get the number of months it takes to recover the cost. Keep the loan past that point and you're ahead. Sell or refinance before it, and you lost money buying the lower rate.
- Staying long-term in your "forever" home? Points can pay off.
- Likely to move or refinance in a few years? Usually not worth it.
- Tight on cash to close? That money may do more as reserves.
The trap is buying points to hit a lower advertised rate without checking the break-even. I run that math for you before you spend a dollar — sometimes points win, often they don't.
A note on today's market
When rates are expected to ease, paying a lot up front for a lower rate you might refinance away from soon makes less sense. We weigh that too. Want to see your specific break-even? Reach out and I'll lay it out clearly.
This article is general education, not a commitment to lend or an offer of credit. Program availability, terms, rates, and qualification guidelines vary by lender and are subject to change; all loans are subject to underwriting and final approval. Market figures are approximate and change over time. For guidance specific to your situation, reach out directly. Garrett Potz, NMLS #631592 · Affinity Home Lending, Company NMLS #1181151 · Equal Housing Lender.