What Mortgage Points Actually Buy You (I Ran the Breakeven)
By De Van Do -- February 10, 2026 -- 8 min read
The Question I Could Not Get a Straight Answer To
Every explanation of discount points I read told me the same two things: a point costs 1% of the loan, and it buys you a lower rate. Then they told me to calculate my breakeven and left me there. Nobody showed me what the breakeven actually comes out to, or whether buying two points is a better or worse deal than buying one.
That second question is the one I wanted answered. It feels like it should have an interesting answer. Two points costs twice as much, but it also buys twice the rate reduction, so does the breakeven get shorter, longer, or stay put? I could not find anyone who had simply run it.
So I ran it through the mortgage calculator on this site, with a loan I could hold constant, and the result was cleaner than I expected. It also changed how I would frame the decision if someone asked me at a closing table.
The Loan I Used
Every figure below comes from the same loan: $400,000, 30 year fixed, 7% as the starting rate. That is the canonical example across this whole site, so the numbers here line up with the amortization and extra payment articles rather than floating free.
On the pricing side I used the most common convention lenders quote: one point costs 1% of the loan amount, so $4,000 here, and buys a quarter point off the rate. That takes 7% down to 6.75%. Two points costs $8,000 and takes you to 6.50%.
One honest caveat before the numbers. That quarter point per point is a convention, not a law. Real pricing sheets move with the market, and on some days a point buys a bit more or a bit less. Your lender will quote you an actual number. The structure of the result below holds regardless, but plug your own quote into the calculator rather than assuming mine.
What One Point and Two Points Did
Baseline first. At 7%, the monthly principal and interest payment on $400,000 is about $2,661, and over the full 360 payments you hand the lender roughly $558,036 in interest.
Buy one point for $4,000 and the rate drops to 6.75%. The payment falls to about $2,594. That is $67 a month less. Over the life of the loan the total interest drops to about $533,981, which is roughly $24,054 saved.
Buy two points for $8,000 and the rate drops to 6.50%. The payment falls to about $2,528, which is $133 a month less than baseline. Total interest lands near $510,178, a saving of about $47,858.
So the second point is not worse than the first. It saves almost exactly as much again. Six times your upfront cost comes back as lifetime interest in both cases, which is a much better headline than most point explanations give you.
The Part That Surprised Me: The Breakeven Does Not Move
Here is the finding that made this worth writing up. Divide the cost by the monthly saving and you get the breakeven, the month where the points have paid for themselves.
One point: $4,000 divided by $67 a month is 60 months. Five years.
Two points: $8,000 divided by $133 a month is also 60 months. Five years.
The breakeven is identical. I expected it to drift, and it does not, because both the cost and the saving scale by the same factor. As long as each point buys the same increment of rate, the ratio between what you pay and what you get back is fixed, and the breakeven is a property of the pricing, not of how many points you buy.
That collapses the decision into something much simpler. You are not really choosing between one point and two. You are answering a single question: will I still have this exact loan in five years? If yes, buy as many points as the lender will sell you and you can afford. If no, buy none. There is no clever middle position where one point is prudent and two is reckless.
Where the Breakeven Quietly Breaks
A five year breakeven only means something if the loan survives five years, and there are several ways it does not.
You refinance. This is the big one. Points are prepaid interest on a specific loan, and refinancing kills that loan. If rates fall a point in year three and you refinance, the money you spent buying down the old rate is simply gone. In a falling rate environment, points are a bet against your own future refinance.
You sell. Median homeowner tenure runs well under a decade, and first time buyers in starter homes move faster than that. If you expect to trade up in four years, points lose.
You are taking an adjustable rate loan. Buying down a teaser rate that resets in five years is close to pointless, since the reset wipes out what you bought.
The seller is paying. If you have negotiated seller concessions, those dollars are not fungible with your down payment in the way cash is, and using them on points can be the best available use of money you would otherwise leave on the table. The breakeven math still applies, but the cost side is not coming out of your pocket.
You need the cash more than the rate. $8,000 spent on points is $8,000 not in your emergency fund and not in your reserves. Lenders look at reserves. So should you.
What the Lender Is Actually Selling You
It helps to understand what a point is on the lender side, because it explains why the breakeven behaves the way it does.
A discount point is prepaid interest. You are handing the lender a lump sum today in exchange for a smaller stream of interest later. From their perspective it is not a discount at all, it is a different way of receiving the same money, priced so that they are roughly indifferent over the expected life of the loan. The pricing sheet that says a point buys a quarter percent is built around an assumption about how long the average borrower keeps the loan.
That is why the breakeven lands where it does. It is not arbitrary. Five years is close to the industry assumption about loan life, which means points are priced to be roughly neutral for the typical borrower. The people who win on points are the ones who beat the average by a wide margin, and the people who lose are the ones who refinance or sell early.
This reframing is more useful than the usual advice, because it tells you what question you are actually being asked. The lender is not offering you a bargain. They are offering you a bet on your own longevity in the loan, at odds they have set carefully. You should take that bet only when you have information they do not, which is your own concrete plan.
The Tax Angle, Briefly and Honestly
Points on a purchase mortgage for a primary residence are often deductible in the year you pay them, which improves the effective cost. Points on a refinance generally have to be spread across the life of the loan instead.
I am deliberately not going to model that here. The value of the deduction depends on whether you itemize at all, which depends on your other deductions and the standard deduction in the year you file, and getting that wrong in either direction would be worse than leaving it out. If you are close to the line on a points decision, that is a question for a tax professional with your actual return in front of them, not for a calculator.
What I will say is that the deduction improves the case for points, it does not reverse it. A five year breakeven does not become a two year breakeven. If the loan is not going to survive five years, the tax treatment will not save the trade.
Points, Lender Credits, and the APR Trap
Points have a mirror image that is worth knowing about, because it is the same trade run backwards.
A lender credit is negative points. Instead of paying money to lower your rate, you accept a higher rate and the lender pays part of your closing costs. The breakeven logic inverts exactly: a credit is good if you expect to leave the loan quickly, and expensive if you keep it. Borrowers who are short on cash at closing and expect to refinance within a couple of years are often better served by a credit than by points, and almost nobody presents it to them that way.
There is also a comparison trap here. APR is supposed to let you compare loans by folding fees and points into a single rate figure. It does that by amortizing those costs over the full term of the loan. If you are not going to keep the loan for the full term, and the entire point of this article is that most people do not, then APR is spreading your points cost over a period you will never reach. A loan with points will always look better on APR than it deserves to for a short horizon borrower.
Use APR to compare two offers with similar fee structures. Do not use it to decide whether to buy points. For that question, the breakeven month is the honest measure, because it is the only one that asks how long you will actually be there.
Run It on Your Own Quote
The structure above holds, but the specific numbers belong to one loan at one pricing convention. Yours will differ on all three inputs that matter: loan size, the rate you are quoted, and how much rate a point actually buys on the day you lock.
Put your real numbers into the mortgage calculator and do it in two passes. First enter your quoted rate and note the payment and the lifetime interest. Then enter the bought down rate and note both again. The difference in monthly payment is your denominator, the cost of the points is your numerator, and the quotient is your breakeven in months.
Then do the only thing that actually decides it. Look at that number of months, look at your life, and ask honestly whether this loan is still going to be your loan on that date. Everything else in the points decision is arithmetic. That part is judgment.
Run your own points math in the Mortgage Calculator
Change the rate by a quarter point and watch the payment and lifetime interest move.
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About the author
De Van Do has a background in technology and built VisualMortgage out of curiosity about making mortgage math transparent. De Van Do is not a licensed loan officer or mortgage broker -- for advice specific to your situation, consult a licensed mortgage professional. Read more about VisualMortgage.