What Are Mortgage Points? (And How They Differ from Mortgage Rate Buydowns)

Homebuyers may hear about paying points, temporary buydowns, and lender credits, but the differences can be confusing. Each tool affects your interest rate, monthly payment, and closing costs in a different way. Understanding these differences helps you decide which option supports your goals.

In this article, we’ll break down what mortgage points are, how they operate, and how they stack up against temporary buydowns and lender credits. With a clearer picture, you can evaluate whether paying points offers good value, or whether another approach might serve you better.

Table of Contents

1. What are mortgage points?
2. How do they work?
   1. Comparing lenders
3. Are mortgage points worth it?
   1. How to calculate the breakeven point
   2. When mortgage points may not make sense
4. What is a mortgage rate buydown?
5. Mortgage points vs. mortgage buydowns
6. How do lender credits differ from mortgage points?
7. Choosing between points, buydowns, and lender credits
8. FAQ
   1. Are a mortgage buyback and a mortgage buydown the same?

What are mortgage points?

Mortgage points, also called discount points, are optional fees paid at closing to reduce your interest rate. They let you prepay some interest up front in exchange for lower long-term borrowing costs.

One point equals 1% of the loan amount. For example, one point on a $250,000 loan costs $2,500; one point on a $400,000 loan costs $4,000. Mortgage borrowers can also purchase partial points (for instance, half a point).

When you buy points, the lender permanently lowers your interest rate by an amount you both agree on. The interest rate reduction applies for the full term of the loan.

How do mortgage points work?

Lenders convert mortgage points (also called discount points) into rate reductions using their own internal pricing models. In many cases, one discount point lowers the rate by about 0.25%. However, the exact value of a point can change with market conditions, loan type, and lender policies.

Most lenders don’t publicly disclose their pricing details, but some offer general guidance. Rocket Mortgage, for example, notes that buying one mortgage point usually reduces the interest rate by 0.25%. This gives borrowers a baseline when comparing different lenders’ price points.

When comparing mortgage rates, it’s important to look beyond the interest rate and evaluate the annual percentage rate (APR). The APR includes fees—such as discount points—so it provides a more complete picture of what the loan actually costs.

For example, if one point is worth 0.25%, a borrower quoted a 7.00% interest rate could see the rate fall to 6.75% by purchasing a point. However, the real cost comparison becomes much clearer when reviewing interest rates, lender fees, discount points, and the APR together.

Comparing multiple lenders

Below is a sample comparison for a $380,000 30-year mortgage with different rates, fees, and discount points:

Lender	Interest rate	Lender fees	Discount points	APR
Lender A	5.625%	$499	$2,849 (0.749 points)	5.705%
Lender B	5.625%	$399	$3,800 (1.000 points)	5.726%
Lender C	5.875%	$0	$2,713 (0.714 points)	5.941%
Lender D	5.990%	$700	$3,496 (0.920 points)	6.093%

As this example shows, focusing on only one factor—such as the interest rate or fees—doesn’t always reveal which loan is the most cost-effective. The APR brings all these variables together so borrowers can make an informed comparison.

A reduced interest rate means lower monthly payments and less total interest paid over time. For buyers planning to stay in their home long enough, the savings can outweigh the upfront cost of purchasing points. 

And because 30-year mortgage rates tend to be higher than shorter-term loans, purchasing discount points can sometimes bring the long-term cost closer to what a shorter-term loan might offer.

Are mortgage points worth it?

Whether mortgage points are worth it depends on your timeline, budget, and long-term plans. Points lower your interest rate, but you pay more up front at closing. The key is comparing the cost with how much you expect to save over time.

Your timeline is a major factor. If you plan to stay in the home for many years, you have more time to benefit from the lower rate. Even a 0.25 percentage-point drop, such as 7.00% to 6.75%, can meaningfully reduce interest costs over the long-term life of the loan.

For example, let’s say you took out a 30-year mortgage of $346,500 and expect to stay in the home for 10 years. You paid one discount point with a cost of $3,500 to reduce your rate by 0.25%, and you chose to finance the cost instead of paying it up front.

As shown in the chart below, even though your loan balance is slightly higher after 10 years, you would still save $3,007.95 in overall financing costs because of the lower interest rate.

	No points	Points
Discount points	$0	$3,500 (1 point)
Mortgage amount (discount points financed)	$346,500.00	$350,000.00
Term	30 years	30 years
Interest rate	7%	6.75%
Monthly payment	$2,305.27	$2,270.09
After 10 years in your home
Mortgage balance	$297,340.44	$298,554.09
Principal repaid	$49,159.56	$51,445.91
Interest costs	$227,473.00	$220,965.00
Net savings after 10 years
Total payments	$276,632.40	$272,410.80
Monthly payment savings		$4,221.60
Loan balance difference		-$1,213.65
Net savings		$3,007.95

Cash at closing also matters. If paying for points would strain your budget or significantly reduce your savings, the trade-off may not be worth it, even if the long-term savings look attractive on paper.

How to calculate the breakeven point

The breakeven point shows how long it takes to recover the upfront cost of buying discount points. It compares what you paid for the point with how much you save each month from the lower interest rate. This helps you decide whether the long-term savings are worth the initial expense.

To calculate it, divide the cost of the points by the monthly payment savings. In the example shown below, if one point costs $3,500 and the lower interest rate saves $58.47 per month, the break-even point is roughly 60 months, or five years.

	No points	Points
Discount points	$0	$3,500 (1 point)
Mortgage amount	$350,000.00	$350,000.00
Term	30 years	30 years
Interest rate	7%	6.75%
Monthly payment	$2,328.56	$2,270.09
Savings per month		$58.47
Discount point cost		$3,500.00
Months to breakeven (recoup the points cost)		60

The example above assumes the discount points were paid in cash at closing. If the points are financed (in other words, added to your mortgage balance), you must also consider the higher loan balance.

You’ll pay more interest with a larger mortgage balance, which increases the true amount you need to recover. This extends the break-even period compared to paying cash.

You can estimate the impact by using a housing calculator like the mortgage points calculator offered by the U.S. Office of Financial Readiness. Taking time to perform this type of analysis can help you see how financing the points changes your total costs.

Keep in mind that if you expect to stay in the home longer than the adjusted break-even point, points may still deliver long-term savings. If you plan to move or refinance sooner, you may not recoup the added cost.

When mortgage points may not make sense

Mortgage points are not the best choice for every borrower. In some situations, the upfront cost may outweigh the long-term savings, especially if your timeline or financial priorities don’t align with the break-even period.

Some situations when buying points might not make sense include the following: 

• Short expected timeline. If you expect to move or refinance within a few years, you may not reach the break-even point. This is especially true if the points were financed and increased your loan balance.
• Limited savings. Buying points can reduce your emergency funds. If paying for points strains your budget, keeping more cash available may be a safer choice.
• Likelihood of refinancing. If you expect interest rates to fall, you may refinance before you benefit from the lower rate. In that case, the upfront cost may not be recovered.
• Tight cash flow needs. Points reduce long-term interest costs but could require extra cash at closing (if you don’t choose to finance the costs). If you need to preserve funds for repairs, moving costs, or savings goals, you might choose to skip the points.

A quick evaluation of your timeline, cash reserves, and future plans can help you decide whether points provide meaningful value. If you may not stay long enough to break even, directing your funds elsewhere might be the better choice.

What is a mortgage rate buydown?

A mortgage rate buydown is a temporary interest rate reduction that lowers your monthly payment for the first few years of the loan. Unlike discount points, a buydown does not permanently change the note rate. The rate increases gradually until it reaches the full rate.

Common structures include 3-2-1 and 2-1 buydowns. In a 2-1 buydown, for example, the rate is reduced by 2% in year one and 1% in year two. After that, it adjusts to the original rate for the rest of the loan term. 

Buydowns are sometimes funded by sellers, builders, or lenders as an incentive. Because they lower payments early on, they can help borrowers ease into a mortgage. But since the rate eventually rises, they offer short-term relief rather than long-term savings.

Mortgage points vs. mortgage buydowns: What’s the difference?

Mortgage points and buydowns both reduce your interest rate, but they work very differently. Points create a permanent rate reduction, while buydowns offer temporary payment relief.

Points are paid up front and lower the rate for the full loan term. This can reduce total interest costs over many years. The borrower typically pays for points at closing.

Buydowns reduce the rate only for the first one to three years. They are often funded by sellers, builders, or lenders rather than the buyer. Once the buydown period ends, the loan returns to the full rate.

In general, points fit long-term homeowners, while buydowns help buyers who need early payment relief or expect income to grow.

How do lender credits differ from mortgage points?

Lender credits are essentially the opposite of mortgage points. Instead of paying extra up front to lower your rate, you accept a higher rate in exchange for help with closing costs.

A benefit of lender credits is that they reduce the amount you need at closing, which can make the loan more affordable up front. The trade-off is that the higher interest rate increases your monthly payment and total interest over time.

Credits can be helpful when cash is tight or when you prefer to keep more savings available. But if you plan to keep the many for many years, the added long-term cost may exceed the benefit of the lower upfront expense.

Choosing between points, buydowns, and lender credits

Choosing among points, buydowns, and lender credits depends on your budget, timeline, and financial goals. Each option affects your upfront costs, monthly payments, and long-term interest in different ways.

Discount points work best when you plan to stay in the home long enough to benefit from a permanent rate reduction. Mortgage buydowns help if you need lower payments early on. Lender credits are useful when you want to reduce closing costs and preserve savings.

Comparing mortgage lender offers can be a way to help you decide which option fits your situation. By taking your time to weigh the trade-offs, you can choose the approach that supports both your short-term needs and long-term plans.

FAQ

Are a mortgage buyback and a mortgage buydown the same?

A mortgage buyback (or putback) is not the same as a mortgage buydown. A buydown temporarily lowers a borrower’s interest rate, while a buyback is an internal process where a lender must repurchase a loan that doesn’t meet investor or agency guidelines.

Buybacks happen behind the scenes and do not affect the borrower’s interest rate, monthly payments, or loan terms. The borrower continues making payments as usual. Instead, a buyback relates to how lenders and investors manage loan portfolios.