How Many Points Can You Buy on a Mortgage?

There are many things to consider when purchasing a home—location, school district, neighborhood, affordability, and type (single family vs. multifamily), just to mention a few. Once you’ve found your perfect home, you must choose the best mortgage type—fixed-rate or adjustable. And then you can decide whether to buy points.

ARE POINTS WORTH IT?

Whether points are worth it in your situation or not depends on a number of things, but there are two main questions that can help you come to a conclusion—do you have limited funds for your down payment and closing costs? And how long do you plan to be in your home?

If you have limited funds when you buy or refinance your home, you may have to use your available funds to make your down payment rather than purchase points. However, if you have excess funds, points may be worth considering.

That said, if you plan to sell your home before the mortgage is paid off, you won’t enjoy the full benefit of interest-rate savings of buying points. But if you plan to be in your home for several years, paying points may be worth it because it will reduce the cost of every payment, which really adds up over the duration of your loan.

It’s a good idea to talk to your mortgage lender about the pros and cons of buying points. They can help you determine the best option for you, based on your situation.

ARE MORTGAGE POINTS TAX DEDUCTIBLE?

Only your public accountant or tax preparer can tell you whether your mortgage points are tax-deductible, based on your current financial situation.

HOW DO POINTS AFFECT MY INTEREST RATE?

As mentioned above, one point will make a 1% difference to your mortgage amount. Here’s an example of a 30-year, $250,000 mortgage (based on rates from June 5, 2023). Note the difference between interest payments and rates as the number of points goes up.

*Note: The fee for one point is one percent of the loan. One percent of $250,000 is $2,500.

As you can see, the monthly payment with 1.5 points is roughly $61 less per month than the zero-point option. However, you pay $3,750 to get the lower rate. It will take you 62 payments to offset the cost of the points (3,700/61=61.48 payments). So, if you don’t plan to own your house for more than 62 months (just over five years), buying 1.5 points would not make sense for you.

SHOULD I BUY POINTS OR MAKE A LARGER DOWN PAYMENT?

Points reduce your interest rate while down payments reduce your total loan amount (which ultimately reduces your interest rate). Dollar for dollar, points generally save you more money than a down payment, so the deciding factor can often be how much money you have at closing.

Here is an example to illustrate how it works: We’ll stick with the 30-year, $250,000 mortgage. You can choose to pay an extra $2,500 down or you can buy one point (which will cost you $2,500). The numbers look like this:

As you can see, you can save over $11,500 by buying down your interest rate rather than paying down your loan in this scenario.

IS THERE A MAXIMUM AMOUNT OF POINTS YOU CAN BUY?

The maximum amount of points you can buy will depend on which financial institution you borrow from, so you will want to check with your mortgage lender.