Are mortgage points worth it? Do this one calculation first

A point is 1% of your loan amount, paid at closing, in exchange for a lower interest rate for the life of the loan.

Whether that’s a good deal is one of the few genuinely simple questions in this business. It’s also one of the most commonly got wrong, because people compare the wrong two numbers.

The only calculation that matters

What the points cost, divided by what they save you each month. That gives you the number of months before you break even.

Say a point costs $4,000 and drops your payment by $118 a month.

$4,000 ÷ $118 = 34 months.

Keep the loan longer than 34 months and the points were worth it. Sell or refinance before that and you handed the lender $4,000 for a partial benefit.

That’s the whole thing. Everything else is detail.

The number people compare instead

Most people compare the two rates. “6.5 versus 6.125 — obviously take the 6.125.”

But the rate isn’t free, and the question was never which rate is lower. It’s whether the money you’re spending today comes back before you’re done with this loan.

The second thing people do is use the loan term as the holding period. Thirty years, so the points obviously pay off. Except almost nobody keeps a mortgage thirty years. Use how long you’ll realistically keep this loan, which is usually far shorter than you’d guess.

Where points genuinely make sense

You’re certain you’re staying. Forever home, stable job, no plans to move. The break-even arrives and everything after it is profit.

Rates are high and you expect them to stay high. If refinancing in two years is unlikely, the loan lives longer and points have time to work.

The seller or builder is paying. If someone else’s money buys the points, the break-even question changes completely. Seller-paid concessions toward points are common on new construction and they’re frequently worth more than a price reduction of the same size.

A temporary buydown, which is a different animal. A 2-1 buydown lowers your rate for the first year or two rather than permanently, and is usually seller-funded. That’s a cash-flow tool for the early years, not a long-term rate play — different question, different maths.

Where they don’t

You’re stretching to close. Points spend cash you may need for reserves, or moving, or the things a house asks for in the first six months. Cash after closing is worth more than most people think.

You’ll likely refinance. If rates are elevated and expected to fall, you’re buying down a rate you plan to abandon.

Your break-even is longer than your realistic horizon. If the number comes out beyond about five years, be honest about whether you’ll still hold this loan.

The bit lenders don’t volunteer

Points are also how a rate quote gets made to look competitive. A lender advertising a conspicuously low rate may be quoting it with points included, against a competitor quoting without. Same lender, same borrower, two very different upfront costs.

That’s exactly what APR is meant to expose, and why comparing quotes at the same rate — with costs broken out — beats comparing headline rates.

What I do with clients

I price it both ways and show you the break-even in months, then ask one question: how long do you actually think you’ll have this loan?

If the answer is “no idea,” that itself is an answer. Uncertainty argues against spending money today for a benefit that only arrives later.

Send me a quote you’ve been given and I’ll tell you what’s in it — including whether the rate you’re being shown has points baked into it.