What are mortgage points, and are they really worth it?

House hunting can be a long, stressful process. After all, you’re not choosing your favorite ice cream flavor; you’re choosing a place to live. And more than a place to live, you’re choosing things like where your kids will go to school, which grocery store you’ll shop at and how far you’ll have to travel for the things you love to do.

But depending on how much you’ve saved, you’re probably also choosing the largest financial obligation of your life. And when that payment figures so heavily into how you manage your money on a monthly basis, you might go to some serious lengths to trim it.

One of the ways you can trim your payments is with mortgage points. But what are mortgage points, and how exactly do they give you a discount on your mortgage? Here are some ways you can determine if purchasing mortgage points are the right decision for you, as well as how you can calculate your savings.

What are mortgage points?

Mortgage points are up front fees you can sometimes pay for to permanently lower the interest rate on your home loan. Usually, a single point costs 1% of your loan amount and generally reduces your interest rate by 0.25%. For example, if you buy a $500,000 home with a 6.5% interest rate, you may be able to pay $5,000 up front to reduce your interest rate to 6.25%.

The benefits of paying for mortgage points

Sounds simple enough, right? You pay one amount at the very beginning of your loan, then you pay less in interest for the life of your loan. Sure, that’s one of the benefits, but it also comes with a few more perks that may not immediately come to mind. Here are a few.

Lower monthly payments

Let’s go back to our example from earlier. You’ve already been pre-approved, and you picked your home. It’s gorgeous. It has everything you need, it fits your life, it fits your family and it’s in a great area. You’re ready to sign on the dotted line for a $500,000 mortgage loan you’ll pay back over the next 30 years. But hold on. You have the option to buy points. For $5,000, you can cut your rate to 6.25%.

Without points, your monthly payment is $3,160, a significant amount that makes you wonder, “How much can I save with $5,000 up front?” On a $500,000 loan for 30 years at 6.25%, your monthly payment is $3,079, a savings of $81 per month. It might not sound like much, but in one year, you can save $972.

Long-term interest savings

It’s important to remember that when you buy points, you aren’t just saving on your monthly payment. You’re saving long-term. That $972 over the course of a year can quickly multiply. In five years, that’s $4,850, nearly equaling your up-front cost. In 10 years, that’s $9,720. Throughout the life of your loan, assuming you keep the loan for the full term, that’s $29,160. And sure, it takes 30 years to get to nearly $30,000, but when it’s all said and done, you’ve cut tens of thousands off the total cost of your home.

Tax deductibility

While points look like one major cost when buying a home, they’re considered a form of prepaid interest, which is deductible when tax season rolls around. If you itemize deductions, you may be able to reduce your tax obligation by purchasing points.

Remember, however, this could only be helpful if you itemize large amounts. The standard deduction for 2026 is $16,100 for single filers and $32,200 for married couples filing jointly. Sticking with our earlier example, if you and your spouse itemize your $5,000 point purchase, you’d still need to deduct another $27,200 to make itemization a better idea than taking the standard deduction.

Because every tax situation is different, consider consulting a qualified tax advisor to determine how purchasing mortgage points may affect your taxes.

Locked-in savings

Again, your point purchase isn’t just for today or tomorrow. It’s not just for next week or next year. It’s for the entire life of your loan and locks in that interest rate until you pay your home off. That can make buying a point more helpful than something like an introductory rate, which expires after a predetermined amount of time.

Smart use of extra cash at closing

Mortgage points are typically purchased when you close and are included in your closing costs. One popular way to pay for them is with savings on closing costs. For example, at Desert Financial, when you participate in the Home Plus program, you can get up to $7,500 toward closing costs.¹ Without that obligation, you can put some of that money toward a mortgage point, cut your interest rate and lower your monthly payment.

But are they really worth it?

That’s always the question, right? We did some of the math earlier, but let’s think about it a little differently. When you put up $5,000 at the very beginning, you probably want to know when you’ll get it back. At $81 per month, you should break even 62 months into your loan. That means almost 25 full years of payments after you’ve already broken even.

Of course, that’s if you plan on seeing your loan through to the end. If you plan on refinancing, which can be a good idea if interest rates go down, you might be better off without the mortgage point because you may not reach the break-even point. If you foresee a long period of high interest rates, you may benefit from buying the point.

It’s also important to think about other things you could do with the $5,000. In the same scenario with a $500,000 loan and a 6.5% interest rate, you could use it as a down payment and cut your payments by $31. Of course, $31 is less than $81, especially when you consider that it’s a monthly savings for 30 years, but that could be an option worth considering if you don’t plan on having your loan long after your break-even point.

You can also take that $5,000 and put it into another long-term vehicle, like a savings account or an investment account. At the same time, if your interest rate on your home loan is higher than your rate of return in one of your vehicles, it might be better to simply buy the mortgage point or put the money toward the down payment.

Getting to the point

The most important thing to remember is that everyone’s situation will be different. It’s always a good idea to talk to your loan officer and other financial professionals before deciding whether you should purchase a mortgage point. They can help you calculate your break-even point and determine if mortgage points are right for you.

If you’re ready to start the homebuying journey, we’re here to help! And not just with your loan. We’re with you the entire way, helping make sure your entire financial life is in balance. Fill out your application to start the process today.