Mortgage Points: When Buying Down Your Rate Makes Sense

How buying down your rate works, when it pays, and when to skip it

Paying points can lower your interest rate and monthly payment. The key is knowing the breakeven, your time horizon, and whether there is a better use of cash. Here is a clear guide for homebuyers and homeowners in Pennsylvania and Florida.

Quick Take

• Points are prepaid interest. One point is 1 percent of the loan amount paid at closing to reduce the interest rate.
• The value of a point varies. Each lender sets its own pricing. We compare across 30+ lenders to find competitive rates and efficient buydowns.
• Check the breakeven. Divide total point cost by the monthly payment savings to estimate how many months it takes to recoup.
• Consider your plan. If you will move or refinance soon, paying points rarely pencils out.

What Exactly Are Points?

Discount points are optional fees you pay at closing to buy a lower interest rate. Think of them as prepaying interest up front to reduce the cost over time.

Seller‑ or lender‑paid points are common in today’s market. Credits from the seller or lender can fund points so you keep more cash in your pocket.

How Points Change Your Rate

The price per point and the rate improvement are not fixed. As market conditions shift, the same point may buy more or less rate reduction. We shop pricing grids across multiple lenders and show you exactly how much one point or a half point changes the rate for your scenario.

Simple Breakeven Math

1. Find your savings: Calculate the monthly payment difference between the no‑points rate and the buy‑down rate.
2. Divide cost by savings: Months to breakeven = total points cost ÷ monthly savings.
3. Compare to your timeline: If you plan to keep the loan longer than the breakeven, paying points can make sense.

Example: On a $400,000 loan, 1 point costs $4,000. If buying the rate down saves $85 per month, breakeven is about 47 months ($4,000 ÷ $85).

We will run this calculation for your price range and taxes so you get exact numbers, not estimates.

When Paying Points May Be Smart

• You expect to keep the loan beyond the breakeven period
• You want a lower payment to qualify comfortably
• You are using seller credits that would otherwise go unused
• You plan to pay the loan on schedule rather than prepay heavily
• You need a specific payment target for budgeting

When Paying Points May Not Be Worth It

• You plan to refinance or sell within a few years
• You want to preserve cash for reserves, repairs, or investments
• The lender’s pricing grid is inefficient and a half‑point buys very little improvement
• You are choosing a program where temporary buydowns or lender credits deliver better overall value

Points vs Temporary Buydowns

Temporary buydowns (like 2‑1 or 1‑0) reduce your payment for the first year or two using an upfront subsidy, then the rate returns to the note rate. These are often paid by the seller or builder and can be useful if your income will rise or a refinance is likely.

Permanent points reduce the note rate for the life of the loan. Better if you expect to hold the loan long enough to pass breakeven.

We will price both options side by side so you can see which aligns with your timeline.

Tax Considerations

Mortgage points on a primary residence may be tax‑deductible in certain cases. Rules differ for purchases, refinances, and investment properties. This is not tax advice. Please consult a tax professional and we will coordinate details for your closing documents.

Using Credits Strategically

• Seller credits can fund points, closing costs, or both. Limits depend on loan type, occupancy, and down payment.
• Lender credits raise the rate slightly to reduce your upfront costs. This can be smart if you will not keep the loan long.
• We can blend partial points with modest lender credits to hit your ideal cash‑to‑close and payment.

Special Notes by Scenario

• First‑time buyers: Consider building reserves first. If credits are available, points can be a smart use after essentials are covered.
• Self‑employed: Lower payments can help with qualifying, but keep cash on hand for variability.
• Investors: Weigh cap rates and cash‑on‑cash returns. Points are usually amortized over your expected hold period.
• Jumbo and Non‑QM: Pricing per point can differ noticeably by lender. Shopping matters.

What Impacts Point Value

• Market volatility and daily rate changes
• Loan program and property type
• Credit score and loan‑to‑value
• Occupancy and number of units
• Lock period and closing timeline

We monitor pricing across 30+ lenders so you see real trade‑offs, not guesses.

FAQs

Are points refundable if I refinance soon? No. Once paid, points are sunk cost. That is why breakeven matters.

Can I roll points into the loan? On a purchase, points are paid at closing, often using seller credits. On a refinance, points can be financed into the new loan if the appraisal supports it.

How many points should I pay? Usually zero to one point is the sweet spot. Beyond that, the extra rate drop often gets smaller, so the payoff takes longer.

Do points affect APR? Yes. Since points are prepaid finance charges, they increase the APR even though they lower the note rate.

Can I combine a temporary buydown with points? Sometimes. Program rules vary. We will confirm what is allowed for your loan type.

Bottom Line

Points are a tool, not a must. If your timeline is long and the pricing is efficient, paying points can lower total cost and create payment comfort. If your horizon is short or cash is king, consider a zero‑point rate.

Buying or refinancing in Pennsylvania or Florida? We will model no‑points, partial‑points, and full‑point options across multiple lenders so you get competitive rates and a plan that fits your goals.