Should You Pay Points to Lower Your Rate?

When you’re shopping for a mortgage, you’ll likely come across the option to pay “points” to lower your interest rate. It’s a concept that sounds great in theory — pay a little more upfront to save a lot over time — but is it the right move for you?

At Rapid Home Loan, we help buyers and homeowners weigh this decision every day. Let’s break it down so you can decide whether paying points makes financial sense in your situation.

💡 What Are Mortgage Points?

Mortgage points (also called discount points) are upfront fees you pay to your lender at closing in exchange for a lower interest rate.

1 point = 1% of your loan amount.
Each point typically reduces your interest rate by 0.25%, though this can vary by lender and market.

📊 Example:
On a $300,000 loan, one point would cost $3,000 and might lower your interest rate from 6.5% to 6.25%.

📉 Pros of Paying Points

✅ Lower Interest Rate = Lower Monthly Payment

Over time, even a small drop in your rate can lead to substantial savings.

✅ Long-Term Interest Savings

If you plan to stay in your home long enough, the interest savings can easily outweigh the upfront cost.

✅ Tax Benefits

Mortgage points may be tax-deductible (check with your tax advisor), offering an additional financial perk.

⚠️ Cons of Paying Points

❌ Higher Upfront Cost

Paying points means bringing more cash to the closing table. If you’re already stretching for your down payment or closing costs, it might not be feasible.

❌ Break-Even Time

It takes time to “recoup” the cost of buying points. If you sell or refinance too soon, you could lose money.

⏱️ How to Calculate the Break-Even Point

To decide if paying points makes sense, calculate your break-even point — the time it takes for monthly savings to equal the upfront cost of the points.

Example:

Cost of 1 point: $3,000
Monthly savings from lower rate: $50
Break-even = $3,000 ÷ $50 = 60 months (5 years)

So if you plan to stay in the home longer than 5 years, buying points may save you money.

💬 When Does It Make Sense to Pay Points?

✔️ You plan to stay in the home long-term

✔️ You have extra cash at closing

✔️ You want the lowest monthly payment possible

✔️ You’re locking in a fixed-rate mortgage

🚫 When You Might Not Want to Pay Points

You plan to move or refinance within a few years
You’re tight on closing funds
You’re opting for an ARM (adjustable-rate mortgage) or shorter-term loan

🏡 Let Rapid Home Loan Help You Decide

Paying points can be a smart move — but only in the right circumstances. At Rapid Home Loan, we run the numbers with you, so you don’t have to guess.

We’ll help you:

✅ Understand your loan options
✅ Calculate break-even timelines
✅ Compare rate scenarios
✅ Make the smartest long-term decision for your budget