Rates guide
Are mortgage points worth it?
Short answer
Mortgage points are worth it only if you keep the loan past the break-even — the point cost divided by the monthly savings. One point costs 1% of the loan and typically lowers the rate about 0.25%. If you'll stay in the home and loan well beyond the break-even (often 4–6 years), points save money; if you'll sell or refinance sooner, they're wasted cash. Always compare a with-points and no-points quote side by side.
How points work
Buying discount points means paying interest in advance to secure a lower rate for the life of the loan. Each point costs 1% of the loan amount — $2,500 on a $250,000 loan — and usually shaves roughly a quarter percent off the rate, though the exact trade varies by lender and market. Points are paid at closing, in cash or through seller or lender credits, so they add to your upfront costs.
Calculating your break-even
The math is simple: divide the cost of the points by the monthly payment savings to find how many months until you recoup the expense. Say two points cost $5,000 and lower your payment by $80 a month — that's a 62-month break-even, just over five years. Keep the loan longer than that and you profit; sell or refinance sooner and you've overpaid. In a market where Michigan buyers often move or refinance within a few years, that break-even deserves a hard look.
When points make sense
Points favor borrowers who are confident they'll hold the loan long-term and who have cash to spare at closing beyond their down payment and reserves. They're a poor choice if paying for them would drain your emergency fund, or if you expect to refinance when rates fall. And if a seller is offering concessions, using them to buy points can occasionally beat taking a price cut — worth running both ways with your lender.
Frequently asked questions
How much does one mortgage point lower my rate?
Roughly 0.25%, though it varies by lender and market conditions. One point costs 1% of the loan amount, so the trade-off is always upfront cash now for a lower rate over the life of the loan.
How do I calculate the break-even on points?
Divide the total cost of the points by your monthly payment savings. The result is the number of months you must keep the loan to recoup the cost. Stay longer and points pay off; leave sooner and you've lost money.
Can I deduct mortgage points on my taxes?
Points paid to buy down the rate on a primary-home purchase are often deductible, sometimes in the year paid. Rules vary, so confirm your situation with a tax professional.