What a point buys
A point is a fee you pay the lender at closing in exchange for a lower interest rate. One point is one percent of the loan amount1, so $4,000 on a $400,000 loan. How much each point takes off the rate depends on the lender, the kind of loan and the market1, so the way to know is to ask a lender for prices at a few rates on the same day. Points have become common again as rates rose: the share of home buyers paying them roughly doubled from 2021 to 2023, to about six in ten2.
The rule of thumb, and what it misses
Lenders, and most calculators, divide what the points cost by what they save each month. For example, 2 points on a $400,000 loan cost $8,000. If they take the rate from 6.50% to 6.00%, the payment falls by $130, and $8,000 ÷ $130 is 62 months, a little over five years. The CFPB puts it the same way: most borrowers only benefit from points if they keep the mortgage long enough for the monthly savings to outweigh the upfront cost2.
That count misses two things, and they pull in opposite directions. A lower rate does more than shrink the payment: more of each payment goes to the balance, and that money comes back to you when you sell or refinance. Counting it brings the break-even forward, by about a year in the example. Against that, the cash spent on points could have stayed in savings or investments. At 4%, what it would have earned pushes the break-even back by about half a year. This page counts both, and shows the lender’s figure beside them.
The APR assumes you stay
The Loan Estimate gives an annual percentage rate so that offers can be compared on one number. It counts the points, but it is worked out from the loan’s whole schedule of payments3: all 360 of them on a 30-year loan. Spread over thirty years, 2 points add about a fifth of a percentage point, so a 6.00% loan shows an APR of 6.19%. Spread over three years they add three quarters: repaid in year 3, the same loan costs 6.75%, more than a 6.50% loan with no points. The table above shows the rate for each year you might leave.
A sale or a refinance ends the bet
Sellers are staying put longer, a median of 11 years before selling, the longest on record4. But a loan can end well before a move, because a refinance ends it too, and the moment rates fall far enough to make refinancing worthwhile is the moment points paid on the old loan stop paying back. The CFPB suggests pricing points against the shortest, the longest and the most likely time you can see yourself keeping the loan1. Try all three in the field above.
Lender credits: the same trade in reverse
A lender credit is points run backward: you pay a higher rate and the lender pays part of your closing costs1, and a lender’s worksheet may list it as negative points. Enter it that way here. A credit comes out ahead at first, because you have the cash, and falls behind as the higher rate costs more each month, so it suits a loan you expect to end soon. The third column compares it with putting less down and borrowing the same cash at the lower rate.
Points and your taxes
Points paid to buy your main home can be deducted in the year you pay them5, if they meet the IRS’s conditions. Points on a refinance are deducted a little each year over the life of the loan. Either way they only lower your taxes if you itemize your deductions, and the rent vs buy calculator works out whether you would. This page leaves taxes out, which for someone who itemizes makes points look slightly worse than they are.
What this page assumes
Figures are estimates for planning, not a loan offer. Both rates are fixed for the full term: adjustable-rate loans and temporary buydowns, such as a 2-1 where a seller pays to lower the rate for the first two years, are not modelled. The rates and points are yours to enter; the defaults assume a quarter of a percentage point off the rate per point, a rule of thumb rather than a quote. What the cash could otherwise earn is a flat yearly return, before tax. The down-payment column sets mortgage insurance aside: at 20% down there is none, but below 20% the same cash put down can reduce or end it, which favours the down payment further. Other closing costs are assumed to be the same for every option. To weigh whole offers from different lenders, with prepayments or a later refinance, use the loan comparison tool, which takes points too. For the whole monthly payment, use the mortgage calculator, and for a loan you already have, the refinance calculator. Confirm anything consequential with your lender.