How points work
The CFPB defines one point as one percent of the loan amount: on a $100,000 loan, one point costs $1,000. How much each point lowers the rate is set by the lender and changes daily, so enter the figure from your own quote.
Cost of points = loan × points × 1%
New rate = rate − points × reduction per point
Monthly savings = payment at old rate − payment at new rate
Break-even months = cost of points ÷ monthly savings
Net at year Y = interest saved over Y years − cost of points
The net figure compares actual interest paid on each loan over the years you keep it, which is more accurate than multiplying the monthly savings, because a lower rate also pays principal down faster.
Worked example
$320,000 at 6.75% for 30 years; buying 1 point cuts the rate by 0.25% to 6.5%:
| Cost of 1 point | $3,200 |
|---|---|
| Payment at 6.75% | $2,075.51 |
| Payment at 6.5% | $2,022.62 |
| Monthly savings | $52.90 |
| Break-even | 5 years 1 month |
| Net benefit if kept 10 years | $4,827 |
When points make sense
- You are confident you will keep the loan well past break-even — no plans to sell or refinance.
- You have cash left after the down payment, closing costs and an emergency fund.
- If rates might fall and you would refinance, points are usually a poor bet, because refinancing ends the benefit early.
Frequently asked questions
How much does one point lower the rate?
It varies by lender and market; there is no fixed conversion. Ask each lender for the rate with zero, one and two points, then compare break-even.
Are points the same as origination fees?
No. Discount points buy a lower rate. Origination fees pay the lender for making the loan. Both appear on page 2 of the Loan Estimate.