Mortgage points can lower your interest rate, but they cost real money up front. Whether they are worth it depends on how long you plan to keep the loan, not on the rate by itself. Here is how to work through the math using your own numbers.
Rates above 6% get people asking about points more often. A higher starting rate means a bigger monthly payment, so trimming the rate feels like it should matter more. It can, but the same breakeven math still decides the answer. A high rate does not automatically make points worth it.
What a point actually buys you
One point costs 1% of your loan amount, paid at closing. On this $320,000 loan, one point costs $3,200.
In exchange, the lender lowers your interest rate. There is no fixed exchange rate. The CFPB says the size of the reduction depends on the lender, the kind of loan, and the mortgage market, and that discount points “have no fixed value in terms of the change in interest rate.” Sometimes a point buys a large cut. Sometimes it buys much less. You have to ask each lender what their point actually buys.
Every example on this page uses an assumed quarter point of rate per point, which you can change with the rate drop per point setting in Your numbers. It is an assumption, not a rule.
Based on your own numbers above, your monthly payment for principal and interest comes out to $2,023. At the default 6.5% rate with no points, that works out to about a 6.59% APR if the lender charges $3,000 in fees. Pay the point and take the assumed 6.25% rate, and the illustrative APR is about 6.44% on the same $3,000 in fees. APR is the cost of the loan stated as a yearly rate, and it is the number that shows what the point really cost you.
Paying the point brings that payment down by $52 a month. That is not a huge amount by itself. It only starts to matter once you consider how long it takes to add up.
When points pay off
Divide the cost of the point by what it saves you each month, and you get your breakeven point. On this loan, that works out to 61 months. Before that month arrives, you have paid more for the point than it has actually saved you. After it, you come out ahead in every month you keep the loan.
The CFPB says points are “less useful for cash-strapped borrowers and those who expect to refinance or move in the near future.” If there is a real chance you will sell or refinance before your breakeven month, skip the points. Put that cash toward your down payment or your closing costs instead.
If you are confident you will stay in the home well past your breakeven month, points can be a genuinely smart trade. A rate that is even a little lower saves you money every single month for as long as you hold the loan. Over many years, that difference adds up to real money.
What this loan costs over time
Points change more than your monthly payment. They change the total cost of the loan over time. Counting interest and the point together, this loan costs roughly $104,112 during the first 5 years. Over the full 30-year term, it costs approximately $411,342.
Run the numbers in the box above using your own loan amount, rate, points, and rate drop per point. Every figure on this page follows your numbers, not a generic example.
Before you agree to pay for any points, ask your lender for a comparable price with zero points as well. Ask for the rate and the APR on both. A genuine side by side quote is the only reliable way to know whether the trade makes sense for you. Do not take one lender’s word for it. Get the same comparison from at least one additional lender, in writing, on the same day.