How Mortgage Points Work: Are They Worth It?

If you’re applying for a mortgage or refinancing, you’ve likely heard the term “mortgage points” thrown around. But what are they really—and should you buy them?

At Rapid Home Loan, we get this question all the time. Mortgage points can be a smart way to save money over the life of your loan—but only if you understand how they work. Let’s break it down.

💡 What Are Mortgage Points?

Mortgage points (also called discount points) are fees you pay to your lender at closing in exchange for a lower interest rate on your loan. Essentially, you’re paying upfront to get a better deal over time.

One point = 1% of your loan amount.

So, for example, if you’re borrowing $300,000:

1 point = $3,000

🔍 How Do Points Affect Your Interest Rate?

Each mortgage point you purchase usually lowers your interest rate by 0.25%, though this can vary by lender and market conditions.

Example:

No points: 7.00% interest rate
Buy 1 point: Pay $3,000 → Rate drops to 6.75%
Buy 2 points: Pay $6,000 → Rate drops to 6.50%

The idea is that by paying more now, you’ll save money over the life of the loan through lower monthly payments.

🧮 When Does It Make Sense to Buy Points?

Buying mortgage points can be a great move if you plan to stay in the home long enough to break even—and then benefit from the long-term savings.

Use this simple question to guide your decision:
Will the monthly savings from a lower rate eventually exceed the upfront cost of the points?

At Rapid Home Loan, we help clients calculate their break-even point based on:

Loan amount
Interest rate reduction
Monthly savings
How long you plan to stay in the home

🏡 Who Typically Buys Mortgage Points?

Mortgage points may be a good fit if:

You’re locking in a long-term, fixed-rate mortgage
You plan to stay in the home for 5+ years
You have extra cash available at closing
You’re focused on lowering your monthly payment

If you’re only planning to stay in the home for a few years, points may not be worth it, and that cash could be better used elsewhere (like toward your down payment or emergency fund).

❌ Mortgage Points vs. Origination Points

Not all “points” are created equal! It’s important to distinguish between:

Discount points: Lower your interest rate (optional)
Origination points: Fees charged by your lender for processing the loan (not optional and do not reduce your rate)

At Rapid Home Loan, we’re always transparent about the difference and will show you exactly what’s included in your loan estimate.

🧭 Should You Buy Mortgage Points?

There’s no one-size-fits-all answer—but here are some things to consider:

Question	Yes? You Might Consider Points
Do you plan to stay long-term?	✅ Yes
Do you want to lower your monthly payment?	✅ Yes
Do you have extra funds at closing?	✅ Yes
Are you financing with a fixed-rate loan?	✅ Yes

Not sure what makes the most sense for your situation? That’s where we come in.

💬 Let Rapid Home Loan Help You Decide

Mortgage points can be a smart investment—but only if they align with your long-term goals. At Rapid Home Loan, we’ll walk you through all your options and help you decide whether buying points is the right move for your financial future.