Points are the one mortgage cost you pay for in advance and collect on slowly. If you leave the loan early, you never finish collecting.
How does break even work?
The CFPB gives the formula in one line. Break even “can be roughly estimated by dividing the cost of the discount points by the borrower’s monthly savings.”
That is it. Cost divided by monthly savings equals months.
On this $320,000 loan, one point costs $3,200 and saves about $52 a month. Divide the first by the second and you get 61 months.
Before that month, you are behind. After it, every month you keep the loan puts you ahead.
What happens if I leave early?
Nothing dramatic. That is the problem. The money just does not come back.
There is no refund of points when you sell. There is no credit for them when you refinance. You bought a lower rate for a term you did not serve.
The CFPB states the condition directly. Most borrowers “only benefit from discount points if they keep their mortgage long enough that the cumulative monthly savings from the reduced interest rate outweigh the upfront costs.”
What does a real example look like?
Freddie Mac’s consumer site walks through one. A $300,000, 30 year fixed loan at 6.25%. One point costs $3,000 and could lower the rate by about a quarter point to 6%, depending on the lender. The payment drops by about $48 a month.
Run those two rates through our own calculator and, assuming $3,000 of other lender fees, the 6.25% loan with one point comes to an illustrative 6.44% APR and the 6% loan with one point to about 6.19%. APR is the yearly cost of the loan with fees counted, and it is the number that makes the point show up.
Divide $3,000 by $48 and you get roughly 62 months, a little over five years. That division is ours, not Freddie Mac’s. The source gives the inputs, not the month count.
Five years is a long horizon. Plenty of people move, get transferred, upsize, or refinance well inside it.
Is one point always a quarter point of rate?
No. This is the assumption that quietly wrecks the math.
The CFPB is explicit that discount points “have no fixed value in terms of the change in interest rate.” Its example: a borrower with a $400,000 loan “might have to pay one discount point ($4,000) to reduce their interest rate by 0.25%, but another lender might equate one discount point, at the same cost, with a higher or lower interest rate reduction.”
So the same $4,000 buys a different amount of rate at different lenders. You cannot carry a rule of thumb from one offer to the next.
Who is most exposed?
Two groups, according to CFPB data on 2023 loans.
Cash out refinance borrowers. Nearly 9 out of 10 paid points, and the median among payers was 2.1 points, double what purchase borrowers paid.
Borrowers with lower credit scores. Point use is sharply higher below a 640 score. The CFPB suggests a reason: “Lenders may be attempting to lower the monthly payments and therefore the DTI so borrowers qualify for a mortgage.” DTI is the debt to income ratio, which is your monthly debt payments divided by your monthly income before tax.
If points are being used to squeeze you into an approval, the break even question was never really asked.
Does the research say points are a bad deal?
Not that simply. The CFPB’s April 2024 Data Spotlight cited Freddie Mac research on prime conventional borrowers, meaning strong credit borrowers on ordinary loans that are not government backed. Between 2018 and 2023 the rate difference between those who paid points and those who did not was minor. The CFPB also notes that analysis “did not fully control for borrower and loan attributes.”
That is a caution flag, not a verdict. Points can still be a good trade for someone with cash and a long horizon.
What this means for you
Ask every lender for two written quotes on the same loan: zero points, and their preferred points. Then compute break even yourself from those two numbers.
Compare the month count to your honest plan. Not your best case plan. Your honest one.
If there is a real chance you move or refinance before 61 months, keep the cash. It works harder in your reserves or your down payment.
If you are confident you will still hold this loan long past that month, points can be worth it. Over 30 years this loan costs about $411,342, and a lower rate touches every one of those payments.
Either way, ask for the break even in months. A lender who will not give you that number is not helping you decide.