Understanding Mortgage Points and How They Can Save You Money

13 December 2025

When you're buying a home, there’s no shortage of financial jargon thrown at you. One term you might come across is “mortgage points.” Sound confusing? Don’t worry—you’re not alone. Many people find the concept of mortgage points mind-boggling at first, but they can actually be a powerful tool to save you money in the long run.

Think of mortgage points like a secret weapon in your homeowner arsenal. If you use them wisely, they can lower your monthly payments and reduce the total cost of your loan. But how do they work? Are they worth it for you? And how exactly do they save you money? Let’s figure it all out.

What Are Mortgage Points?

First things first—what exactly are mortgage points? In simple terms, mortgage points (sometimes called discount points) are fees you pay upfront to lower the interest rate on your home loan.

Each point typically costs 1% of your loan amount. So, if you’re borrowing $300,000, one point would cost $3,000. In return, this payment reduces your interest rate, which could save you thousands of dollars over the life of your loan.

It’s kind of like pre-paying for a discount. Imagine you’re at a coffee shop and the barista offers you a deal: pay $50 today, and you’ll get a 10% discount on your coffee orders for the next five years. Sounds like a fair trade, right? Mortgage points work in a similar way.

Types of Mortgage Points

Okay, here’s where it gets a little more specific. There are actually two types of mortgage points:

1. Discount Points.
These are the points that reduce your loan's interest rate. The more points you buy, the lower your rate. Think of them as the money-saving superheroes of the mortgage world.

2. Origination Points.
These are fees lenders charge to cover the cost of processing your loan. They don’t save you money—they’re more like a convenience fee for borrowing. For this article, we’re focusing on discount points since they’re the ones that can save you cash.

How Do Mortgage Points Work?

Great question! Let’s break it down.

When you buy mortgage points, you’re essentially trading money upfront for long-term savings on interest. For every point you purchase, your interest rate is typically reduced by 0.25%.

Let’s say you’re taking out a $300,000 loan with an interest rate of 6%. Here’s what the numbers might look like:

- Without points, your monthly mortgage payment (just principal and interest) would be about $1,798.

- If you decide to buy 2 points (costing $6,000), your interest rate drops to 5.5%. Now, your monthly payment is about $1,703.

That’s a savings of $95/month, which adds up to $1,140 a year. Over 30 years, you’d save a whopping $34,200—all from paying $6,000 upfront. Not bad, right?

How Do Mortgage Points Save You Money?

Still wondering where the savings actually come from? It all boils down to interest. The lower your interest rate, the less you’re paying on the loan overall.

Here’s a quick analogy: imagine filling up a swimming pool with a leaky hose. The bigger the leak, the more water (and money!) you’re wasting. Reducing your interest rate is like patching up that leak—it minimizes waste and helps you get to your goal faster.

Are Mortgage Points Right for You?

Now, before you start throwing money at mortgage points, it’s important to figure out if they’re the right move for you. They’re not a one-size-fits-all solution.

Here are a few things to consider:

1. How Long Do You Plan to Stay in the Home?

Mortgage points are a long-term savings strategy. If you’re planning to move or refinance in a few years, you might not break even on the upfront cost.

To figure out if points are worth it, calculate your break-even point. This is how long it takes for your monthly savings to equal the upfront cost of the points.

For example, if you spend $6,000 on points and save $95 a month, it’ll take about 63 months (or just over 5 years) to break even. Staying in the home longer than that? Great—you’ll start seeing real savings.

2. How Much Cash Do You Have?

Buying points requires upfront cash. If you’re already scraping together every penny for your down payment and closing costs, it might not make sense to stretch yourself for mortgage points.

On the other hand, if you’ve got some extra savings and want to reduce your long-term costs, points could be a smart choice.

3. What’s Your Loan Size?

Remember, points are based on a percentage of your loan amount. The bigger the loan, the bigger the cost—but also the bigger the potential savings.

Pros and Cons of Mortgage Points

Let’s quickly weigh the pros and cons so you can make an informed decision.

✅ Pros:

- Lower Interest Rates. Who doesn’t love paying less over time?
- Long-Term Savings. If you plan to stay in your home for a while, the savings can really add up.
- Potential Tax Benefits. In some cases, the cost of points can be tax-deductible (check with a tax advisor).

❌ Cons:

- Upfront Cost. Not everyone has thousands of dollars lying around.
- Takes Time to Break Even. If you sell or refinance too soon, you could actually lose money.
- Not Always the Best Option. Depending on your financial situation, there might be better alternatives, like putting that money toward a bigger down payment.

Tips for Buying Mortgage Points

If you’ve decided mortgage points are right for you, here are a few tips to make the most of them:

1. Shop Around. Different lenders offer different rates and terms, so it’s worth comparing.
2. Negotiate. Some lenders might be willing to lower the cost of points to win your business.
3. Do the Math. Use an online mortgage points calculator to see if the savings are worth it for you.
4. Consider Partial Points. You don’t have to buy whole points—some lenders offer fractions of a point if you want to save smaller amounts upfront.

Final Thoughts

Mortgage points can feel a little intimidating at first, but they’re honestly not that complicated once you break them down. Think of them as an investment in your financial future. Just like choosing the right home or neighborhood, it’s all about making a choice that fits your specific situation.

If you’re planning to stay in your home long enough to break even and you’ve got the cash to spare, mortgage points could save you a bundle in the long run. But if the upfront cost feels too steep or your plans are more short-term, it’s okay to skip them.

The key is to do your homework, run the numbers, and make the choice that works best for you. After all, owning a home is one of the biggest financial decisions you’ll ever make—so a little extra effort now can lead to huge rewards down the road.