What do points mean on a mortgage?
One point equals one percent of the loan amount. On a $300,000 loan, one point is $3,000. You pay it at closing.
- Discount points lower your interest rate. You pay more upfront in exchange for a smaller monthly payment.
- Origination charges are what the lender charges to make the loan. Some lenders call any upfront fee figured as a percentage of the loan "points", even if it doesn't lower your rate. Check your Loan Estimate to see which is which.
- Lender credits work in reverse ("negative points"): the lender pays some closing costs and you accept a higher rate.
How much a point lowers the rate isn't fixed. It varies by lender, loan type and market conditions, so compare offers at the same number of points.
The break-even math
If you keep the loan longer than the break-even period, the points save money. If you sell or refinance sooner, you lose money on them.
Worked example
A $300,000, 30-year fixed loan at 6.75% with no points. Suppose each point lowers the rate by 0.25 percentage points (an example; real pricing varies).
| Option | Upfront cost | Rate | Monthly principal and interest | Saved per month | Break-even |
|---|---|---|---|---|---|
| No points | $0 | 6.75% | $1,945.79 | ||
| 1 point | $3,000 | 6.50% | $1,896.20 | $49.59 | About 61 months |
| 2 points | $6,000 | 6.25% | $1,847.15 | $98.64 | About 61 months |
Here the points pay for themselves after about five years. Planning to move in three years? Skip them. Planning to stay 15 years? They save about $49.59 × 180 − $3,000 = $5,926 per point over that time, ignoring what the cash could have earned elsewhere. Run your own offer through the mortgage points calculator or compare payments with the mortgage calculator.
Things the simple break-even leaves out
- The cash you spend on points could earn interest or reduce the amount you borrow instead.
- Refinancing later resets the clock; points on the old loan are gone.
- Points raise the loan's APR relative to its rate. See what APR includes.
Are mortgage points tax-deductible?
The IRS treats points as prepaid interest. Under Publication 936 you can generally deduct them in full in the year paid only if you itemize on Schedule A and all of these are true:
- The loan is secured by your main home.
- Paying points is an established practice where the loan was made.
- The points weren't more than is generally charged there.
- You use the cash method of accounting (most individuals do).
- The points weren't paid in place of amounts normally listed separately, such as appraisal, title or attorney fees.
- The money you provided at or before closing, plus any seller-paid points, was at least as much as the points (and wasn't borrowed from the lender or broker).
- You use the loan to buy or build your main home.
- The points were figured as a percentage of the loan amount.
- The amount is clearly shown as points on the settlement statement.
Otherwise, you generally deduct them over the life of the loan. Points on a refinance are generally spread over the loan's life, except the part tied to money used to substantially improve your main home. Points on a second home can't be fully deducted in the year paid. Seller-paid points are treated as paid by you, and you reduce your home's basis by that amount. Fees for services, such as appraisal fees, notary fees and mortgage insurance premiums, aren't points.
Sources: CFPB: discount points and lender credits; IRS Publication 936 (2025).
Every worked example on this page was checked with Calcist's own engine and an independent reference.