Is buying mortgage points a good idea?

You’re about to close on a house, and your lender offers you a deal: pay a few thousand dollars now to lower your interest rate. It sounds like free money over time. But is buying mortgage points actually a good idea, or is it a trap that locks up cash you’ll desperately need later?

The answer depends on math most buyers never run—and on assumptions about the future that rarely hold.

What mortgage points actually cost you

One mortgage point equals 1% of your loan amount. On a $400,000 mortgage, that’s $4,000 per point. In exchange, you typically get a 0.25% reduction in your interest rate. Sounds straightforward until you realize you’re betting $4,000 that you’ll stay in this house long enough to recoup it through lower monthly payments.

Here’s where it gets uncomfortable. The average American stays in a home for about 8-10 years, but refinances even sooner—often within 3-5 years when rates drop or circumstances change. If you refinance before hitting your break-even point, those points are gone. You paid for a rate you didn’t keep.

The break-even calculation is simple but brutal. Divide what you paid for points by your monthly savings. If you spent $4,000 to save $65 per month, you need 62 months—over five years—just to break even. Every month after that is profit. Every month before is money you could have invested elsewhere.

The hidden opportunity cost nobody mentions

Financial advisors love to focus on the break-even point. What they often ignore is what else that money could do.

That $4,000 in points could instead become your emergency fund buffer, pay down high-interest credit card debt, or go into an index fund averaging 7-10% annual returns. When you buy points, you’re essentially making a guaranteed investment at whatever your rate reduction translates to in APY. Often that’s around 4-6%—decent, but not spectacular, and completely illiquid.

You can’t access that money if your car breaks down. You can’t use it if you lose your job. It’s locked into your mortgage, returning value only if you make payments on that specific loan for years.

This is the real question: given your financial situation, is a guaranteed but locked-up 5% return better than liquidity and optionality? For most first-time buyers stretching to afford a down payment, the answer is usually no. For established buyers with substantial savings, sometimes yes.

When buying points makes sense

There are scenarios where mortgage points genuinely pay off:

You’re certain you’ll stay put. If you’re buying your forever home in a community where you have deep roots—aging parents nearby, kids settled in schools, a job you love—the math tilts in your favor. The longer you hold the loan, the more those monthly savings compound.

Rates are historically high and likely to stay there. When rates are elevated and unlikely to drop significantly, refinancing becomes less attractive. Your purchased rate becomes your long-term rate, giving those points maximum runway.

You’re in a high tax bracket with significant mortgage interest. Points paid on a home purchase are often tax-deductible in the year you buy. If you’re in the 32% bracket, that $4,000 effectively costs you $2,720 after tax benefits, dramatically shortening your break-even period.

You have excess cash with no better use. If your emergency fund is full, you have no high-interest debt, and you’re already maxing retirement contributions, points offer a reasonable guaranteed return.

When buying points is likely a mistake

More often, buying points represents wishful thinking dressed up as financial prudence:

You’re stretching for the down payment. If buying points means a smaller emergency fund or higher credit card balances, you’re taking on concentrated risk. Homes have a way of demanding unexpected cash—repairs, property tax surprises, HOA assessments.

Your life situation is uncertain. Job changes, family growth, relationship shifts, health issues—any of these could force a move or refinance. Buying points assumes stability you may not have.

Rates are low and likely to stay low or drop further. In a low-rate environment, the incentive to refinance increases. Every rate drop tempts you to start over with a new loan, abandoning your purchased points.

You’re buying at the top of your budget. If the monthly payment is already tight, the last thing you need is less liquid cash. That points money could be the difference between weathering a rough month and missing a payment.

The break-even reality check

Before you decide, run your specific numbers. Your lender will tell you exactly how much points cost and how much they reduce your payment. Then ask yourself:

Will I definitely keep this loan for at least [break-even months]? Not the house—the loan. Refinancing resets everything.

What would I do with this money otherwise? Be honest. If it would sit in a savings account earning 4%, points might beat that. If it would pay off 22% credit card debt, the answer is obvious.

How stable is my income and life situation for the next 5-7 years? Stability makes points safer. Uncertainty makes them risky.

Could I instead put the money toward a larger down payment to avoid PMI? Sometimes eliminating private mortgage insurance offers better returns than buying down your rate.

A simple decision framework

Here’s the rule of thumb: If you have to ask whether buying points is worth it, it probably isn’t for you.

Buyers who benefit most from points usually know immediately. They have excess cash, plan to stay forever, and see points as a boring-but-reliable investment. They’re not stretching. They’re not hoping.

Everyone else should probably keep their cash liquid. The flexibility to handle emergencies, invest opportunistically, or refinance without regret almost always beats the modest guaranteed return from mortgage points.

The lender offering you points has no stake in whether you stay long enough to benefit. They get their money at closing either way. Your job is to run the math, be honest about your future, and resist the seductive simplicity of “lower rate = better deal.”

Because sometimes the cheapest mortgage isn’t the one with the lowest rate. It’s the one that leaves you enough margin to actually keep it.