Quick answer: Mortgage discount points are prepaid interest: one point costs 1% of the loan amount and permanently lowers your rate (commonly ~0.125–0.25% per point, per your Loan Estimate). They pay off only if you keep the loan past the break-even month — the cost divided by the monthly savings. Sell or refinance before then, and the money was spent for nothing.
Points are the most oversold product in mortgage lending — and occasionally the smartest money you'll spend. The difference is one division problem. Here's the break-even math, when points beat a temporary buydown or a bigger down payment, and the reverse trade (lender credits) nobody mentions. If you are pricing a purchase in Southern Nevada, our overview of Las Vegas conventional loan options is a useful companion to this math.
Key takeaways
- One point = 1% of the loan, paid at closing, for a permanent rate cut — the exact trade prints on your Loan Estimate and varies by market.
- The only question that matters: break-even month = points cost ÷ monthly savings. Keep the loan longer than that, points win; exit earlier, they lose.
- Long holders lean points; short holders lean a temporary buydown (deeper early relief, seller-funded, unused escrow refunded).
- Lender credits are the same trade reversed — a higher rate in exchange for lower cash to close. Powerful when cash is the constraint.
What are mortgage discount points?
Discount points are interest you prepay at closing in exchange for a permanently lower rate. One point costs 1% of the loan amount. The rate reduction per point floats with the market — commonly in the 0.125–0.25% range — and it's rarely linear: the first point usually buys more reduction than the third. Don't confuse discount points with the origination charges some lenders also quote in "points"; your Loan Estimate separates them.
How do you know if points pay off? The break-even math
$400,000 loan, 30-year fixed. One point ($4,000) lowers the rate from 6.5% to 6.25%.
P&I at 6.5%: $2,528/mo • at 6.25%: $2,463/mo → saves $65/mo
Break-even: $4,000 ÷ $65 ≈ 62 months (~5 years)
Keep the loan past year five and the point keeps paying you back every month for decades. Refinance in year three and you left roughly $1,600 on the table. Your actual pricing comes from your Loan Estimate on lock day.
Valley West takeAsk yourself one honest question before buying points: "Do I actually believe I'll hold this loan five-plus years?" In a falling-rate environment most borrowers refinance sooner than they think, which quietly erases the points math. Our rule of thumb: buy points when you're confident in a long hold at a rate you're happy with; skip them when refinancing is realistically on your horizon — and never buy points with money that would otherwise be your emergency reserves. The reserves are worth more to your approval and your life.
Points vs. temporary buydown vs. bigger down payment
| Discount points | Temporary buydown | Bigger down payment | |
|---|---|---|---|
| Effect | Permanent rate cut | Deep payment relief, years 1–3 only | Smaller loan, less interest forever |
| Usually paid by | Buyer | Seller or builder credit | Buyer |
| If you refinance early | Money spent | Unused escrow refunded | Equity kept |
| Best for | Confident long holders | Short horizon, payment-tight years | Risk-averse; may drop PMI sooner |
What are lender credits? The reverse trade
Lender credits (sometimes called negative points) flip the transaction: you accept a modestly higher rate and the lender pays part of your closing costs. When cash to close is the binding constraint — common for first-time buyers — a credit can make the purchase possible now, and if rates fall later, the refinance costs you a rate you never intended to keep anyway. The same break-even logic applies in reverse: the shorter your expected hold, the better credits look.
See your points math on real pricing.
We'll price your loan at zero points, one point, and with a lender credit — same day, side by side — so the break-even is a fact, not a guess. Las Vegas based, licensed in 32+ states.
Get your fast quoteDiscount points FAQ
What are mortgage discount points?
Prepaid interest: one point costs 1% of the loan and permanently lowers your rate, typically ~0.125–0.25% per point depending on market pricing. The exact trade is on your Loan Estimate.
Are discount points worth it?
Only past break-even (cost ÷ monthly savings). Hold longer, they win; refinance or sell sooner, they lose. In the example above break-even is about five years.
How much does one point lower the rate?
Market-dependent and rarely linear — commonly 0.125–0.25% per point, with the first point buying the most. Lock-day pricing decides.
Are points tax deductible?
Points are prepaid interest and can be deductible on a purchase under IRS rules — confirm with your tax professional.
Points or a temporary buydown?
Long hold at a rate you like: points. Short horizon or payment-tight early years with a seller credit available: buydown — unused escrow comes back if you exit.
The bottom line
Points are neither a scam nor a free lunch — they're a bet on how long you'll keep the loan. Do the division, be honest about your horizon, and remember the same dollars have three other jobs available: buydown escrow, bigger down payment, or reserves. The right answer falls out of your timeline, not the sales pitch.
Sources
- CFPB — What are discount points and lender credits and how do they work: consumerfinance.gov
- IRS — Topic 504, Home mortgage points: irs.gov
Across Valley West: Pricing points on a conventional quote? ConventionalHomeLoans.services is the program-specific home.
Keep reading
Last updated: July 18, 2026 — fully rewritten from the 2014 original; break-even math verified ($400k example), three-way comparison and lender-credit section added.
