Points are a bet on how long you stay
Buying points is not a discount, it is a trade. You hand over capital today for a stream of monthly savings that only exists while the loan does. The entire question is whether the stream outlives the break-even point:
break-even months = points cost ÷ monthly savings
Worked example
$400,000, 30 years. Without points: 7.0%, $2,661/month. One point ($4,000) buys 6.75%: $2,594/month. The saving is $67/month, so break-even is 60 months. Stay 10 years: about $4,040 ahead. Stay the full 30: roughly $20,100 ahead. Move at year 3: $1,600 lost.
The average American mortgage lasts well under a decade before a sale or refinance ends it, which is why points, marketed as prudence, are frequently a quiet loss. Run your own expected tenure, not the salesperson's.
Questions to ask the lender
- What exactly does one point buy? The 0.25%-per-point rule is folklore; real quotes range from 0.125% to 0.375%. Ask for the rate at 0, 1 and 2 points and run each through this page.
- Is the payback linear? Often the first point buys more rate reduction than the second. Two points can be worse per dollar than one.
- Points versus credits both directions? Seeing the full menu (negative points included) reveals the lender's actual pricing curve, and where its generosity sits.
Where points fit among the alternatives
The same cash could be a bigger down payment, an extra-payment fund, or investments. Points are the most locked-in of the four, their value evaporates the day the loan ends early. As a rule of thumb from the math: certain long stay + strong rate reduction per point → points can be excellent; any real chance of moving or refinancing within ~7 years → skip them and keep the flexibility. If rates fall after you buy, the refinance calculator will tell you whether abandoning your points-bought rate is worth it, a decision that stings precisely because the points are sunk.