Mortgage Points: How to Save Thousands on Your Home Loan

Imagine you’re taking out a $300,000 mortgage. If your interest rate is 6.5%, your monthly payment (excluding taxes and insurance) would be about $1,896.

But if you buy one mortgage point for $3,000 (1% of the loan), your interest rate might drop to 6.25%. That small change could save you roughly $50 a month. Over 30 years, that’s $18,000 in total savings.

Sounds good, right? Let’s break down mortgage points so you can decide if they’re worth it.

What Are Mortgage Points?

Mortgage points (also called discount points) let you pay extra upfront to lower your interest rate. Each point usually costs 1% of your loan amount and reduces the interest rate by about 0.25%.

For example, if your loan is $400,000, one mortgage point costs $4,000 and could lower your rate from 7% to 6.75%. This can reduce your total interest payments over the life of the loan.

Understanding mortgage points also means knowing how they impact your overall borrowing cost. Explore the difference between APR and interest rate.

How Do Mortgage Points Work?

You pay upfront – When you close on your mortgage, you pay for points along with other closing costs.

Lower rate, lower payments – Buying points reduces your interest rate, which means lower monthly mortgage payments.

Break-even point matters – You need to stay in the home long enough to make back what you spent on points through monthly savings.

Another strategy to reduce your monthly mortgage payment is through mortgage recasting, an alternative worth exploring.

What You Must Know About Mortgage Points?


Factor	What It Means	Why It Matters	How It Works
Lower Interest Rate	Reduces your loan’s interest rate	Saves money on interest over time	Buying 1 point typically cuts the rate by 0.25%
Lower Monthly Payments	Makes your mortgage more affordable	Easier to manage finances	A lower rate means you pay less every month
Higher Upfront Costs	You need cash at closing to buy points	Might strain your budget if funds are tight	If you don’t have savings, points may not be a good idea
Break-even Period	The time it takes to recover the cost of points	Staying longer makes points more worthwhile	If you sell or refinance too soon, you might lose money
Not Always Necessary	Some buyers might not benefit from points	If you plan to move soon, they may not be worth it	The longer you stay, the better the savings

Why Loan Term Matters: 15-Year vs. 30-Year Mortgages

Mortgage points have a bigger impact on longer loans. Here’s why:


Loan Term	Monthly Payment (with points)	Total Interest Saved
30-Year Loan	Lower monthly payments, but more interest over time	Saves more in total interest
15-Year Loan	Higher payments, but you pay off the loan faster	Less time for points to make a difference

If you’re taking a 30-year mortgage, buying points makes more sense because you’ll be paying interest for a long time. With a 15-year loan, you’re already saving on interest, so points may not have as big of an impact.

To dive deeper into which loan term suits you best, read our comparison on 15-year vs. 30-year mortgages.

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Should You Buy Mortgage Points?

Ask yourself these questions:

How long do I plan to stay in the home?
Do I have enough savings to cover both closing costs and mortgage points?
How much will points reduce my interest rate?
Will I reach my break-even point before I sell or refinance?

If you’re staying in the home for a long time and have the extra cash, buying points can be a smart move. If you’re planning to move or refinance soon, it may not be worth it.

A qualified mortgage loan originator can provide personalized advice to help you evaluate the worth of buying points.

Final Thoughts

Mortgage points can save you a lot of money over time, but they require an upfront investment. The key is to calculate your break-even point and make sure you’ll benefit in the long run. However, saving money on your home purchase isn’t just about mortgage points reducing upfront costs can also help.

Ready to Maximize Your Mortgage Savings? Combine reAlpha’s commission-free buying with strategic mortgage points to slash thousands off your homeownership costs. Save up to 3% instantly—no hidden fees, just pure savings.

Before deciding on mortgage points, it's essential to secure mortgage pre-approval to ensure you're shopping within your budget.

FAQs

Q1: When should I consider mortgage points?

If you plan to stay in the home long enough to recover the cost.
If you want to lower your interest rate and monthly payments.
If you have extra cash at closing.

Q2: When should I avoid mortgage points?

If you don’t have enough savings to cover upfront costs.
If you plan to sell or refinance soon.
If you prefer to keep more cash for other expenses.

Q3: How many points should I buy?

It depends on your loan amount, lender policies, and how long you plan to keep the mortgage. Talk to a lender to determine the best option for you.