Confused About Mortgage Points? You’re Not Alone.
If you’re buying a home — especially for the first time — you’ve probably heard about “mortgage points”, “buying down the rate”, or “paying points at closing.” And like most buyers, you may be thinking:
“Wait… are mortgage points just extra fees? Or do they help me save money?”
Let’s break it down in plain English. By the end of this guide, you’ll understand exactly what mortgage points are, how they work, and whether they make sense for you.
What Are Points on a Mortgage?
Mortgage points are fees you can pay to either get a better interest rate or to cover lender costs. One point = 1% of your loan amount.
There are two main types of mortgage points:
- Discount Points – These lower your interest rate in exchange for upfront cash.
- Origination Points – These are lender fees for processing your loan.
For example:
If you’re borrowing $300,000, then 1 point = $3,000.
How Do Mortgage Points Work?
Let’s focus on discount points — the kind that help you “buy down” your rate.
- You pay more upfront at closing
- Your monthly mortgage payment goes down
- The interest savings grow the longer you keep the loan
Here’s a quick example:
loan amount | points paid | rate reduction | monthly savings |
|---|---|---|---|
$300,000 | 1 Point ($3,000) | ~0.25% | ~$50/month |
Pro Tip: The exact rate reduction per point varies by lender, loan type, market conditions — even the day you lock your rate.
How to Calculate the Breakeven Point
Here’s how to figure out if buying points is worth it:
Example:
You pay $3,000 for 1 point
You save $50 per month in your mortgage payment
Breakeven = $3,000 ÷ $50 = 60 months (5 years)
- Staying longer than 5 years? You come out ahead.
- Selling or refinancing sooner? You may lose money.
When Does Buying Mortgage Points Make Sense?
You might consider buying points if:
- You plan to stay in the home for 7+ years
- Interest rates are high and you’re locking in long-term savings
- You’re getting seller credits you can use toward points
- You want a lower monthly payment for budget stability
When Not to Buy Points
Mortgage points aren’t always a smart move. Avoid them if:
- You plan to refinance in a couple of years
- You’re tight on cash for your down payment or emergency fund
- You’re unsure how long you’ll stay in the home
- You feel rushed into paying for points without understanding the full picture
Watch out for this trap: Some lenders dangle low rates in ads — only to reveal later they include hidden discount points. Always ask: “Is this rate with or without points?”
Red Flags: When Points Are Buried in the Fine Print
Here’s where many buyers get tripped up:
- They compare two loan offers but only one shows points — and they don’t realize it.
- Lenders present “surprise” points at the last minute to “secure the rate.”
- Buyers feel pressured to accept an offer without understanding the true cost over time.
At Federal Hill Mortgage, we believe in full transparency from day one. We show you both options — with and without points — so you can decide with confidence.
Mortgage Points vs Down Payment: Which Is Better?
This is a common point of confusion.
- A larger down payment lowers your loan amount, which can reduce monthly payments and eliminate PMI (private mortgage insurance).
- Buying points lowers your interest rate, which also reduces monthly payments — but only after you hit the breakeven point.
If you have $5,000 extra, which saves you more over time? That’s what our Mortgage Offer Evaluator Tool can show you — side-by-side.
How Federal Hill Mortgage Helps You Decide
We do mortgage points differently:
- Transparent rate quotes — with and without points
- Side-by-side comparisons tailored to your goals
- No-pressure guidance from local experts
- Access to our Mortgage Offer Evaluator to decode any lender quote
We walk you through every scenario so you’re never guessing what’s best. No surprises at closing — just smart decisions upfront.
FAQ: Common Myths About Mortgage Points
-
Do points always save you money?
Only if you keep the loan long enough to breakeven. Otherwise, it’s money lost.
-
Are points bad if I refinance later?
Yes — refinancing too soon can erase the savings you paid for upfront.
-
Are origination points the same as discount points?
Nope! Origination points are just lender fees — they don’t reduce your interest rate.
-
Can I use seller credits to pay for points?
Absolutely! That’s often a smart way to get a lower rate without using your own cash.
Ready to See If Points Make Sense for You?
Let’s compare your loan options side-by-side.
See your rate with and without points — no hidden fees, no fine print.
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