Key Takeaways
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Mortgage points reduce your interest rate in exchange for an upfront payment.
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They’re ideal for buyers planning to stay long-term and skip future refinancing.
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The break-even point helps measure long-term value based on monthly savings.
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Educated buyers can use mortgage points strategically to improve affordability.
In today’s higher-rate environment, mortgage points, buying down an interest rate, and reducing monthly mortgage payments have become essential strategies for many buyers. As a real estate agent, understanding how these tools work can help your clients secure better financing—and help you close deals faster. Mortgage points, or discount points, allow buyers to pay upfront at closing in exchange for a lower interest rate that lasts the life of the loan.
This article explores how mortgage points work, how they differ from origination fees, when they make financial sense, and how to calculate the break-even point for long-term savings.
What Are Mortgage Points?
Mortgage points are prepaid interest. A buyer pays these points to the lender at closing to reduce the loan’s interest rate.
Mortgage Point Basics
| Item | Definition |
| 1 Mortgage Point | Equals 1% of the total loan amount |
| Rate Reduction | About 0.25% per point (varies by lender) |
| Example | $400,000 loan → 1 point = $4,000 → reduces rate from 7.0% to 6.75% |
Buyers can purchase full or partial points depending on their budget and savings goals. The more points purchased, the lower the interest rate and monthly payment.
Mortgage Points vs. Origination Points
It’s easy to confuse mortgage points with origination points, but they serve very different purposes.
| Type | Purpose | Affects Rate? |
| Discount Points | Prepaid interest to lower the rate | Yes |
| Origination Points | Lender’s fee for processing the loan | No |
By clearly explaining this distinction to your clients, you’ll build trust and prevent confusion during the loan estimate review.
Temporary vs. Permanent Rate Buydowns
Many builder promotions and lender incentives offer reduced rates through temporary buydowns. These differ significantly from permanent buydowns, which are paid with mortgage points.
Comparison of Rate Buydown Types
| Type | Who Pays? | Rate Reduction Duration | Best For |
| Temporary (e.g., 3-2-1) | Seller or lender | Reduced for 1–3 years | Short-term savings |
| Permanent (Points) | Buyer | Reduced for entire loan term | Long-term affordability |
If your client plans to stay in the home long-term, a permanent buydown provides more value. For short-term ownership or temporary affordability, temporary buydowns may be a better fit.
When Do Mortgage Points Make Sense?
Your buyer should consider mortgage points if they:
- Plan to stay in the home at least 5 years
- Don’t expect to refinance in the near future
- Have extra funds available after the down payment and closing costs
In these situations, the upfront cost of points can be offset by long-term interest savings.
How to Calculate the Break-Even Point
Before buying points, your client should calculate how long it takes to recoup the upfront cost through monthly savings.
Break-Even Formula:
Break-even (months) = Cost of Points / Monthly Savings
Example:
| Details | Value |
| Points Cost | $4,000 |
| Monthly Savings | $133 |
| Break-Even Time | 30 months (2.5 years) |
If a buyer sells or refinances before reaching the break-even point, they may lose money by buying points.
Buyer Savings Example Over 30 Years
| Points Purchased | Rate | Cost of Points | Monthly Payment (P&I) | Total Interest Paid | Total Interest Saved |
| 0 Points | 7.0% | $0 | $2,661 | $558,036 | — |
| 1 Point | 6.75% | $4,000 | $2,594 | $533,981 | $24,055 |
| 2 Points | 6.5% | $8,000 | $2,528 | $510,178 | $47,858 |
Over 30 years, buying two points could save a buyer nearly $50,000 in interest. That’s a powerful talking point when showing homes at the top of a client’s budget.
Why Realtors Should Care About Mortgage Points
Buyers often view affordability as the biggest obstacle to homeownership—especially when rates are high. Introducing the option of mortgage points helps:
- Reduce monthly payments without changing the loan term
- Position your listings more competitively (especially new construction)
- Boost buyer confidence through financial education
- Speed up the decision-making and closing process
In a competitive market, being a realtor who understands and explains financing tools adds value and builds long-term client trust.
Should Your Client Buy Mortgage Points?
The answer depends on their goals, financial situation, and timeline. If your client plans to own the home long-term and wants to reduce their monthly payments, mortgage points may be a smart move. On the other hand, if they expect to refinance or move within a few years, the upfront cost may outweigh the benefit.
Partner with a trusted loan officer to run real-life numbers with your buyers. Sometimes, putting that same cash toward a larger down payment could have more impact.
FAQs: Mortgage Points
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