Are mortgage points worth it? The break-even month, counted three ways

By DecisionSheet · Updated October 4, 2026 · 2026 tax figures

A discount point is prepaid interest: one point costs 1% of the loan at closing and buys a lower rate for the life of the loan (CFPB). Whether that is a good trade depends almost entirely on one thing: how long the loan lasts before a sale or a refinance pays it off. The usual way to find the break-even is to divide the cost of the points by the monthly payment saving. This page works one example through month by month, shows what that rule of thumb leaves out in each direction, and gives the answer the mortgage points break-even calculator reaches.

The example

• The loan. $400,000, fixed rate, 30 years.
• Offer A. 7.00% with no points. Principal and interest: $2,661.21 a month. For context, the Freddie Mac survey's average 30-year fixed rate was 7.03% as of September 24, 2026 (Freddie Mac PMMS).
• Offer B. 6.50% for 2 points, which is $8,000 at closing. Principal and interest: $2,528.27 a month.

The pricing is an assumption: 0.50% off the rate for 2 points. How much a point buys "depends on the specific lender, the kind of loan, and the overall mortgage market," in the CFPB's words, so take the real trade from each lender's Loan Estimate, which lists points as a percentage of the loan amount (CFPB: Loan Estimate).

The rule of thumb: month 61

Offer B's payment is $132.94 lower. $8,000 ÷ $132.94 is 61 months, rounded up: 5 years 1 month. That figure is easy, and it is wrong in two ways that pull in opposite directions.

What it misses, part one: the lower rate repays principal faster

In the first month, Offer A charges 7.00% ÷ 12 on $400,000 and Offer B charges 6.50% ÷ 12. The difference, $166.67, is the interest the points save. The payment only falls by $132.94, so the other $33.73 goes to principal: Offer B pays its loan down faster than Offer A, on a lower payment.

That matters the day the loan ends. Whoever sells or refinances has to pay off the balance, and Offer B's is smaller. Count what each offer has paid plus what it still owes, and Offer B's lead is simply the interest it has avoided minus the $8,000. On that measure the points break even in month 48 (4 years), 13 months earlier than the rule of thumb. Open the interest-only scenario.

This is the reverse of a refinance, where the rule of thumb flatters the new loan because it restarts a 30-year clock; see Mortgage refinance break-even. Here both offers run the same term, and the lower rate is the faster one.

What it misses, part two: the $8,000 could have earned something

Money spent on points is not in a savings account or an index fund. Done fairly, Offer A's borrower keeps the $8,000 and invests it, and Offer B's borrower invests the $132.94 a month the lower payment frees. Both spend the same cash every month. With both earning 4% a year, the points break even in month 53 (4 years 5 months). At 8% it is month 60 (5 years): at that return the two things the rule of thumb leaves out roughly cancel. Open the 8% scenario.

How long you keep the loan decides it

The lead below is what Offer B is ahead by if the loan ends after that many years, through a sale, a refinance or a payoff. "Return on the points" is the annual rate the $8,000 earns over that stay: the rate at which investing the cash instead would have come out exactly level.

The shape is the whole story. Points are a fixed cost paid on day one and earned back a month at a time, so a short stay loses most of the cost. After 3 years the payments saved, $4,786, are more than half the $8,000, yet the points are still $2,690 behind with the cash at 4%. Open the 3-year scenario. After 5 years the points have earned 8.1% a year, well above the 4% savings rate and roughly level with 8% stocks (+$25 at that return). After 10 years they have earned 19.8% a year, with no market risk, and Offer B is $11,805 ahead. Open the 10-year scenario.

The returns at 1 and 3 years look extreme because they are annual rates on a loss taken over a short time. The dollar column is the one to read there.

The refinance problem

The table assumes the rate you lock is the rate you keep. If rates fall and you refinance, the loan ends early and so does the payback: refinance in year 3 and the points above are a $2,690 loss. That makes points a bet that rates will not fall far enough to refinance before the break-even. Buyers who may move before the break-even, or who borrow when rates are high and expect them to fall, are the ones for whom points most often lose. A lender credit, the same trade in reverse, is covered in Lender credit or no points?.

Points and taxes

Points paid to buy a main home can generally be deducted in the year paid, but only by those who itemize; points on a refinance are generally deducted over the life of the loan (IRS Topic 504). Anyone who takes the standard deduction gets nothing back from them. The calculator is pre-tax and does not include the deduction; for an itemizer it would make the points somewhat cheaper and the break-even somewhat earlier.

Assumptions and limits

• Both offers are fixed-rate loans on the same amount and term, with interest charged monthly at one-twelfth of the annual rate. Points are paid in cash at closing, not added to the loan.
• The points price, 0.50% off the rate for 2 points, is an assumption. Real rate sheets vary by lender and by day.
• The return on cash is a constant annual rate converted to an equivalent monthly rate. It applies both to the cash Offer A keeps at closing and to the payment saving Offer B invests each month. It is an input the reader chooses, not a prediction.
• The break-even month is the first month from which Offer B stays level or ahead for the rest of the term.
• Pre-tax throughout: no mortgage interest deduction, no deduction for points, no tax on investment returns. Property tax, insurance and other closing costs are the same under both offers and are left out.

Method and sources

The model is calculateMortgagePoints in the mortgage points break-even calculator. Each offer is amortized month by month with the standard fixed-rate payment formula. Offer B's lead at a month is the monthly payment saving invested to that month, plus Offer A's remaining balance minus Offer B's, minus the extra cash at closing grown at the same return; at a 0% return that equals interest saved minus the cost of the points. The return on the points is the internal rate of return of paying the points, receiving the payment saving each month and owing less at the end, found by bisection. The model was checked against an independently written model of the same comparison. Every figure above comes from running it on the inputs in the scenario links.

• CFPB: How should I use lender credits and points (also called discount points)?: one point equals 1% of the loan amount; how much the rate falls varies by lender, loan and market.
• CFPB: Loan Estimate explainer: the form that lists a loan's points and other closing costs.
• Freddie Mac, Primary Mortgage Market Survey: 30-year fixed-rate average of 7.03% as of September 24, 2026.
• IRS Topic 504, Home mortgage points: when points can be deducted, and the requirement to itemize. Not applied here.

Open this scenario in the calculator

All figures on this page come from the Mortgage Points Break-Even calculator. Change any input there and the numbers update.