Your lender offers to drop your rate from 6.55% to 6.30% for $4,000 at closing. The payment falls by $66 a month, which sounds like an easy yes — until you divide one number by the other and find you need to keep the loan for five years before you see a dollar back.
You’ll learn what a point actually buys, how to calculate your break-even month, when points genuinely pay, and why a temporary buydown is a different product wearing similar language.
What a Point Buys
One discount point costs 1% of the loan amount and is paid at closing. On a $400,000 loan that is $4,000. What it buys varies with market conditions, but roughly 0.25% off the rate is typical — sometimes less when lenders price aggressively, occasionally more.
At 6.55% on July 20, 2026, here is the arithmetic on a $400,000 30-year fixed:
| Option | Rate | Monthly P&I | Upfront cost |
|---|---|---|---|
| No points | 6.55% | $2,541 | $0 |
| One point | 6.30% | $2,476 | $4,000 |
| Two points | 6.05% | $2,411 | $8,000 |
Why Five Years Is the Wrong Number for Most Buyers
Sixty-one months only matters if you are still holding that exact loan in month sixty-two. Two things routinely intervene.
You sell. Median tenure varies by market and by life stage, but a meaningful share of buyers move within five to seven years — and first-time buyers move sooner than average, not later.
You refinance. This is the one buyers underweight. If rates fall a point in three years and you refinance, the points you bought disappear with the loan you bought them for. You paid $4,000 for a rate you no longer have. Nothing is recovered, and unlike the payment reduction, that money does not come back at sale either. Run your own numbers through our mortgage calculator at both rates before you commit.
When Points Genuinely Pay
You are certain about the horizon. A forever home, a paid-off career stage, a property you will hold as a rental. Certainty beyond the break-even month is the whole case.
The seller is paying. A seller credit applied to points is close to free money — you get the lower rate without the cash outlay. In slower markets this is negotiable, and it is worth asking for before asking for a price reduction, since the monthly effect is often larger.
You are at the edge of a debt-to-income ceiling. This is the underrated case. Points lower the payment, which lowers your back-end ratio. A borrower sitting at 44% against a 43% limit can buy their way inside it. Here the points are not an investment decision at all — they are the price of the approval. Our breakdown of where DTI limits land by program shows which ceiling applies to you.
You would otherwise put the cash into the down payment. Compare directly. Four thousand dollars of extra down payment on a $400,000 loan reduces the payment by roughly $25. The same $4,000 in points reduces it by $66. Points win on monthly cash flow — but the down payment builds equity and may help you clear a mortgage insurance threshold, which points never do.
Temporary Buydowns Are a Different Product
A 2-1 buydown is often presented alongside points, but it works differently. Your note rate stays at 6.55% for the full term. What changes is that an escrowed fund, usually paid by the seller or builder, subsidises your payment for the first two years — year one at 4.55%, year two at 5.55%, then the full rate from year three.
| Year | Effective rate | Monthly P&I | Subsidy that year |
|---|---|---|---|
| 1 | 4.55% | $2,039 | about $6,024 |
| 2 | 5.55% | $2,284 | about $3,084 |
| 3 onward | 6.55% | $2,541 | none |
Two things to hold in mind. You are underwritten at the full note rate, not the subsidised one — the buydown does not help you qualify. And your payment will rise by roughly $500 between year one and year three, which is a real budgeting event and lands around the same time as the escrow adjustment covered in our piece on why payments jump in year two.
The Question to Ask Your Lender
Ask for the same loan quoted at zero points, one point and two points, with the rate for each. Lenders price points differently and the ratio is not a constant — one lender may sell 0.25% for a point while another sells 0.20% for the same money. Comparing the ratio is how you tell a good offer from a repackaged one.
Then ask about lender credits, which run the trade in reverse: you accept a slightly higher rate in exchange for money toward closing costs. For a buyer short on cash or planning to refinance within a few years, that is frequently the better side of the same trade. Check where rates sit today on our daily rates page, and if a refinance is already on your horizon, calculate its break-even month first.
The bottom line
- One point costs 1% of the loan and typically buys about 0.25% off the rate.
- On a $400,000 loan, $4,000 buys roughly $66 a month — a break-even near 61 months.
- Refinancing before break-even destroys the investment entirely; selling does too.
- Points make clear sense when the seller pays, when the horizon is long, or when they buy you inside a DTI ceiling.
- A 2-1 buydown is a temporary subsidy, not a rate reduction, and you still qualify at the full note rate.
Frequently Asked Questions
How much does one discount point lower your rate?
Typically about 0.25%, though it varies by lender and market conditions. Ask for the same loan quoted at zero, one and two points to see the actual ratio you are being offered.
How do I calculate the break-even on points?
Divide the total cost of the points by the monthly payment reduction. The result is how many months you must keep that loan before the points pay for themselves.
Are discount points tax deductible?
Points on a purchase of a primary residence may be deductible in the year paid if certain conditions are met, while points on a refinance are generally deducted across the loan term. Tax treatment depends on your situation, so confirm with a tax professional.
Is a 2-1 buydown the same as buying points?
No. Points permanently reduce the note rate. A 2-1 buydown leaves the note rate unchanged and subsidises the payment for two years from an escrowed fund, after which the full payment applies.
Sources & further reading:
Consumer Financial Protection Bureau,
30-year conforming rate lock index via FRED.
