When you apply for a mortgage, you'll often see an option to pay discount points, fees paid upfront in exchange for a lower interest rate. One point typically costs 1% of the loan amount and lowers your rate by roughly 0.25%, so on a $400,000 loan that's $4,000 paid at closing to shave a quarter point off your rate.
Divide the cost of the points by the monthly savings to find your break-even month.
Points do save you money. The real question is whether they save you enough money soon enough to be worth the upfront cost.
Points are a useful tool, not a default choice.
Treat them like any investment: weigh the upfront cost against your timeline, and only buy down the rate when the math clearly works in your favor.
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A loan officer can price your loan with and without points and show you the break-even month for each. Pre-qualifying will not affect your credit score.
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