Mortgage Points: Are They Just Another Fee or a Smart Way to Save?
June 10, 2025
6 min read
There’s a specific moment in the homebuying process when even the most financially literate among us feel the walls closing in. For me, it was right around the time my lender casually asked, “Would you like to buy any mortgage points?”
Cue the internal panic: Points? As in…rewards? Like credit card points? Or…a penalty? Or is this one of those mortgage traps people on Reddit warn you about?
I was already buried in disclosures, terms, and spreadsheets, so my first instinct was to say no, keep it simple, and move on. But curiosity (and a small streak of stubbornness) got the better of me. I took a step back, did some digging, and—surprise!—mortgage points weren’t just another confusing fee to dodge. They could actually save me thousands over the life of my loan.
What Are Mortgage Points, Really?
Here’s how it works in a nutshell. Each point usually costs 1% of your loan amount. For example, if you’re borrowing $300,000 for your new home, one point will cost you $3,000. This upfront payment typically knocks about 0.25% off your interest rate. Over time, that lower rate could save you buckets of cash on what you pay in interest.
Sounds good, right? But, of course, there’s a tradeoff—you’ll need to have the extra cash upfront to buy those points. And not everyone’s situation or budget makes that doable (or necessary).
Why Do People Buy Mortgage Points?
Alright, now you’re probably wondering, “Why would I shell out extra money upfront when buying a home already costs so much?” Great question. People buy mortgage points because it could mean:
- Lower monthly payments: You’re reducing the cost of your loan over time. That’s money you could use elsewhere, like saving for vacations, college funds, or emergency expenses.
- Big savings over the loan term: If you stay in the home and keep the loan long enough, the point(s) you bought might pay for themselves—and then some.
- Peace of mind: It feels good to know you’ve secured the lowest rate possible for your financial situation.
But hold up—this isn’t a one-size-fits-all deal. Mortgage points don’t automatically save everyone money; they work best in specific situations. Don’t worry, we’ll get into how to tell if they’re right for you in just a second.
To Buy or Not to Buy? That’s the Big Question.
When Mortgage Points Could Be Worth It
- You’re staying put for the long haul. Mortgage points make the most sense when you plan to be in your home for many years. The savings build up over time, so the longer you stay, the better deal you’re getting.
- You’ve got the cash to spare. If you have extra money in your budget or savings account, buying points is like prepaying a piece of your interest. It’s not as exciting as a new sectional sofa, but it could be worth it if saving in the future is your goal.
- You’re reducing long-term cost. If your goal is to save as much as possible over the term of the loan (maybe it’s a 30-year mortgage), points could be a smart financial move.
When Mortgage Points Might Not Be for You
- You’re not staying long. Planning to sell or refinance in a few years? It may take several years to “break even” on the upfront cost of buying points. We’ll do the math on that in just a sec.
- You’re low on funds. If you’re hardly scraping together the down payment and closing costs, buying points may stretch your finances. Consider paying for essentials first.
- You’re getting a sweet deal already. Sometimes, you’re lucky enough to snag a super low interest rate without points. (Nice work—you’re winning!)
The term “points” goes all the way back to when mortgage pricing menus resembled a point-based chart. Now, it’s just industry lingo for upfront costs.
Breaking Down the Math
Alright, if you’re still with me, I’m guessing you like numbers—or at least, you’re curious about how this pays off. Here’s a quick scenario so you can see the potential savings:
- Loan amount: $300,000
- Interest rate without points: 4.5%
- Interest rate with 1 point (cost = $3,000): 4.25%
- Monthly payment without points (principal + interest): $1,520
- Monthly payment with 1 point: $1,476
You’d save $44 a month, which adds up to $528 a year. Over 10 years, that’s $5,280 saved. Subtract the $3,000 you paid upfront for the point, and you’re still ahead by $2,280. Not bad, right?
Of course, this only works if you stay in the house long enough. If you sell after three years, you’ve only saved $1,584—a loss compared to that upfront $3K spend.
How to Decide If Mortgage Points Are Worth It for You
Here’s where it gets personal. To decide whether to buy mortgage points, ask yourself:
- How long do you plan to stay in the home? More time = more savings.
- Do you have the cash upfront? Points are an investment, not a requirement.
- What’s your breakeven point? Divide the cost of points by your monthly savings to see how long it takes to recoup the upfront cost.
When I bought my first house, I thought I had to buy mortgage points because my lender mentioned them like they were part of the package deal. Turns out, I didn’t—and I’m glad I asked questions. My budget was tight, and using that $3,000 for closing costs made more sense. Ask lots of questions. Seriously—it’s your money on the line.
Trust the Math, Not the Hype
Mortgage points aren’t a scam or a hack. They’re a strategic tool—one that might work in your favor if your timeline, budget, and loan terms all align.
I didn’t buy points on my first mortgage. It didn’t make sense at the time—I wasn’t sure how long I’d stay, and I needed every dollar for furniture (and, let’s be honest, paint samples I obsessed over for three weeks).
On my second mortgage? Different story. I had a longer horizon, a bigger cushion, and a lender willing to negotiate. And you better believe I ran the numbers with my calculator in one hand and a coffee in the other.
The key isn’t whether you should or shouldn’t buy points—it’s whether they support the bigger picture of your homebuying goals.
