Rates
What are mortgage points, and are they worth it?
Paying points lowers your rate in exchange for cash at closing. Whether it pays off comes down to one number: how long you keep the loan.
Published
Read time
6 min read
By
Mei Chen
When you see a rate quote with points, you are looking at a trade. You pay extra at closing, and the lender gives you a lower interest rate for the life of the loan.
How points are priced
One point costs 1% of your loan amount. On a $600,000 loan, one point is $6,000. How much it lowers the rate varies by lender and by day, but a quarter of a percentage point per point is a common rule of thumb.
The break-even test
Say one point takes a 30-year fixed rate from 6.25% to 6.00%. Principal and interest fall from about $3,694 to about $3,597 a month, a savings of roughly $97. Divide the $6,000 cost by $97 and you break even in about 62 months, a little over five years.
Keeping the loan longer than the break-even? Points can save real money
Planning to sell or refinance sooner? Skip them and keep the cash
Short on cash for closing? A lender credit, the opposite of points, can lower your costs in exchange for a slightly higher rate
Why we show points on every quote
Two rate quotes are only comparable when the points match. Our sample rate board always lists points next to the rate and APR so you can see the full trade at a glance.
General education, not advice
This guide explains how mortgages generally work. Any rates and payments in examples are sample figures for illustration, not a commitment to lend. Rules change and your situation is your own, so talk to a licensed loan officer before you decide.
