Mortgage Points: Are They Worth Paying? (2023)

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Mortgage discount points are portions of a borrower’s mortgage interest that they elect to pay upfront. By paying points upfront, borrowers are able to lower their interest rate for the term of their loan. If you plan to stay in your home for at least 10 to 15 years, then buying mortgage points may be worthwhile.

What Are Points on a Mortgage?

Mortgage points represent a percentage of an underlying loan amount (one point equals 1% of the loan amount). Mortgage points are an additional upfront cost when you close on your loan, but they’re also a way for borrowers to negotiate a lower interest rateon their mortgage. For example, by paying upfront 1% of the total interest to be charged over the life of a loan, borrowers can typically unlock mortgage rates that are about 0.25% lower.

It’s important to understand that points do not constitute a larger down payment. Instead, borrowers “buy” points from a lender for the right to a lower rate for the life of their loan. Buying points does not help you build equity in a property—you just save money on interest.

Origination Points vs. Discount Points

There are two different types of mortgage points: origination points and discount points. Discount points represent prepaid interest that can be used to negotiate a lower interest rate for the term of a loan.

Origination points, on the other hand, are lender fees that are charged for closing on a loan. Origination points don’t save borrowers money on interest, although they can sometimes be rolled into the balance of a loan and paid off over time. Discount points, however, have to be paid up front.

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How Do Mortgage Points Work?

When you apply for a loan and get approved, your lender will give you a loan offer. In your offer, the lender will typically offer you multiple rates, including a base rate, as well as lower rates that you can get if you purchase discount points.

(Video) Is Buying Mortgage Points Worth It?

Those discount points represent interest that you’re repaying on your loan. If you decide to purchase points, you pay the lender a percentage of your loan amount at closing and, in exchange, you get a lower interest rate for the loan term. Typically, for every point you purchase, you get to lower your interest rate by 0.25%.

Like normal mortgage interest that you pay over the life of your loan, mortgage points are typically tax-deductible. However, points are usually only used for fixed-rate loans. They’re available for adjustable-rate mortgages (ARMs), but when you buy them, they only loweryour rate for your intro period—several years or longer—until the rate adjusts.

When Is Paying Points on a Mortgage Worth It?

When you buy discount points, you decrease your monthly payment, but you increase the upfront cost of your loan. Due to the difference in monthly payments, it usually takes between five and 10 years to recoup the upfront cost of discount points.

Instead of buying points, many borrowers instead choose to make larger down payments (or make extra payments on their mortgages) in order to build equity in their homes quicker and pay off their mortgages early, another way to save money on interest payments.

Still, in some cases, buying points may be worthwhile, including when:

  • You need to lower your monthly interest cost to make a mortgage more affordable
  • Your credit score doesn’t qualify you for the lowest rates available
  • You have extra money to put down and want the upfront tax deduction
  • You plan to keep your home for a long time, so you may recoup the cost

Of course, this really only applies to discount points. Origination points, on the other hand, are closing costs paid to a lender in order to secure a loan. While these fees are sometimes negotiable, borrowers usually have no choice about whether to pay them in order to secure a loan.

Mortgage Points Example

Let’s say a prospective homeowner applies for a $400,000, 30-year mortgage so they can buy a $500,000 house. They have good credit and plenty of income, so they get approved. After underwriting, they get a loan offer from a lender that includes multiple rates—one with their rate if they purchase no points, plus alternative rates if they purchase one to four discount points.

Below are sample rates for this borrower, upfront costs to purchase those points and respective monthly payments for each rate:

PointsRateUpfront Cost (Excluding Origination Points)Monthly Payment




















In this case, each point would save the borrower about $60 per month. It would take a borrower 66 months (roughly 5.5 years) to recoup the cost of each discount point they purchase.

Can You Negotiate Points on a Mortgage?

When you apply for a loan, both discount points and origination points are theoretically negotiable. But, in practice, that’s not always the case. The only way to know for sure is to speak with your loan officer once you’ve been approved for a loan.

If you want to successfully negotiate either discount or origination points, one of the best things you can do is to apply for mortgages from multiple lenders. Then, when you get loan offers, you can let each lender work to earn your business by negotiating lower rates or closing costs.

You don’t need to worry about this hurting your credit score, as credit bureaus treat credit checks from multiple mortgage lenders within about a 30-day period as one credit check. They assume that you’re shopping around for the best rates, which you should do.

(Video) Should I pay points on a Mortgage?

Are Mortgage Points Tax Deductible?

When you purchase discount points (or “buy down your rate”)on a new mortgage, the cost of these points represent prepaid interest, so they can usually be deducted from your taxes just like normal mortgage interest.

However, you can usually only deduct points paid on the first $750,000 borrowed. In other words, if you take out a $1 million mortgage and buy one point for $100,000, you can only deduct $75,000 (1% times $750,000). The extra expense—paid on the last $250,000—is not tax-deductible.

According to the IRS, the expenses for mortgage points can be itemized on Schedule Aof your Form 1040. The IRS says that “if you can deduct all of the interest on your mortgage, you may be able to deduct all of the points paid on the mortgage.”

How Mortgage Points Affect Closing Costs

Buying mortgage points will increase your closing costs. Mortgage points—both discount points and origination points—increase your upfront costs in exchange for lowering the interest rate on your mortgage loan.

Benefit of Paying Discount Points as Part of Closing Costs

Simply put, in exchange for each discount point you pay at closing, your mortgage rate will be reduced and your monthly payments will also go down accordingly.

Should I Buy Points on a Mortgage?

You might want to pay points to get a lower interest rate if you have enough money upfront and want to save over the life of the loan. You might instead consider buying lender credits if you don’t have much money to pay upfront and want to save on monthly costs.

However, if you don’t know how long you’ll be in the home, paying points or taking on a higher interest rate to receive lender credits might not be the best idea.

You should ask your loan officer to show you two different options—with and without points or credits—and calculate the total costs over a few possible scenarios to see which is right for you.

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(Video) Should You Pay MORTGAGE POINTS | Should I Pay POINTS on a Mortgage | Mortgage Points Explained

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Frequently Asked Questions (FAQs)

Why are points added to a mortgage?

Mortgage discount points are portions of your mortgage interest that you elect to pay upfront. By doing this, you’re able to lower your interest rate for the length of your loan term.

How much are 25 points on a mortgage?

One point is equal to 1% of the loan amount, so 25 points are 25% of the loan amount.

How do I know if I paid points on my mortgage?

Before the sale closes, you can find information about the points to be paid or lender credits in your closing disclosure document. Afterward, the information about the points you paid is listed in Box 6 of the IRS’ Form 1098, the Mortgage Interest Statement.

(Video) Mortgage Discount Points Explained | Should Home Buyers Pay Them

How many mortgage points can I buy?

The number of mortgage points you can buy will depend on your lender. One-point and three-point programs tend to be the most common, but aren’t always the only options. You also don’t have to pay a full point to lower your interest rate.

What are negative points on a mortgage?

Negative points are the same as lender credits. Credits work the same way as points, but in reverse. You pay a higher interest rate and the lender gives you money to offset your closing costs. So you pay less upfront, but you owe more over time because of the higher interest rate.

What is a good number of points on a mortgage?

There isn’t a set number of points that’s ideal, just what works best for you. The number of points you pay should come down to how much cash you have on hand (to cover the higher closing costs) versus how much you want to lower your interest rate and monthly mortgage payments.

Origination fees vs. points: What's the difference?

Discount points represent prepaid interest that can be used to negotiate a lower interest rate for the term of a loan.

(Video) What Are Mortgage Points? [Mortgage Points Explained]

Origination fees are charged by lenders for closing on a loan. Origination fees don’t lower your interest, but some lenders will roll them into the loan to be paid off over time. Discount points have to be paid upfront.


Is it a good idea to buy points on a mortgage? ›

Points can increase your closing costs by thousands of dollars, but the large upfront cost might be worth it if you stay in the home long enough to see savings from the reduced interest rate. Paying an extra $2,000 upfront could mean tens of thousands of dollars in savings over the course of your mortgage.

Is it worth paying points for a lower interest rate? ›

The lower the rate you can secure upfront, the less likely you are to want to refinance in the future. Even if you pay no points, every time you refinance, you will incur charges. In a low-rate environment, paying points to get the absolute best rate makes sense.

How much does 1 point reduce a mortgage rate by? ›

Each mortgage discount point usually costs one percent of your total loan amount, and lowers the interest rate on your monthly payments by 0.25 percent. For example, if your mortgage is $300,000 and your interest rate is 3.5 percent, one point costs $3,000 and lowers your monthly interest to 3.25 percent.

How much does 1 point raise your mortgage? ›

Each mortgage discount point typically lowers your loan's interest rate by 0.25 percent, so one point would lower a mortgage rate of 4 percent to 3.75 percent for the life of the loan.


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