Points or No Points
When to Pay Points on Your Mortgage: A Complete Guide
Many lenders or loan officers make an interest rate look more appealing by charging points. If you need help deciding which lender to go with, check out this Academy post: Cutting Through The Noise: How to Compare Mortgage Quotes from Multiple Lenders to learn how compare apples-to-apples quotes from different lenders to weed out things like the Lender/Loan Officer’s margin and fees. All lenders can offer points (or credits), so once you understand the overall rates of a lender, you now get to decide whether you actually want to pay points. Thus, this academy post focuses on when is paying points actually worth it? Let’s break it down step by step.
Step 1: Compare Options at the Same Lender
Before deciding, do an apples-to-apples comparison. Look at three or four scenarios:
More points – pay extra upfront to reduce your interest rate
Less points – moderate upfront cost with moderate savings
No points – no upfront cost, slightly higher interest rate
Credit - instead of paying, the lender can give you cash towards closing costs for a slightly higher (than the other option) rate.
Check what your monthly principal and interest (P&I) payment would be in each scenario. This shows the actual savings points provide.
Step 2: Calculate Your Break-Even Point
Here’s an example:
Paying $2,000 in points lowers your monthly payment by $200.
Break-even is 10 months ($2,000 ÷ $200).
A shorter break-even period is generally more appealing. If the break-even stretches 18–36 months, paying points may not make sense—especially if you plan to move or refinance sooner.
Step 3: How Will You Pay for Points?
Points can be paid in three ways, but not available depending on the loan purpose:
Out-of-pocket at closing – reduces your monthly payment immediately (all loans).
Financed into the loan – slightly increases your loan balance, which affects the break-even calculation. (only available for refinances)
Sellers Credit or Lenders Credit - depending on your market, sellers credit can be used for paying for points in a purchase transaction. Lenders credit is possible in both purchases and refinances in exchange for a slightly higher rate.
Consider this carefully before deciding.
Step 4: Factor in Market Conditions
Interest rate trends and economic conditions matter:
If a recession or falling rates are expected, refinancing again soon may be possible. For VA refinances, you could be eligible to refinance again 210 days after your first payment, which may make paying points less attractive. For conventional, refinancing at least 6 months post-close is generally the kosher thing to do.
If it looks like the economy is heading in the other direction, then paying points so that you can benefit from a lower interest rate, and consequently a lower monthly payment, for the long run could make the most sense.
It will come down to your risk appetite once you look at all the math, and then a best guess.
Step 5: Ask Yourself Key Questions
How long will I stay in this home?
Do I have cash available for points, or will I finance them (refinance only)?
What is the interest rate trend, and how could it change in the near future?
Bottom Line
Paying points can save you money—but only if it aligns with your timeline, finances, and market conditions. Doing the math carefully helps you make a smart, informed decision.
Thinking about refinancing your loan? Compare rates and calculate your break-even today!
