FAQ: Should I pay points to lower my mortgage rate?

A lower mortgage rate can be appealing, especially when even small changes in rates can affect your monthly payment. One option some buyers consider is paying discount points to lower their interest rate.

Discount points are an upfront cost paid at closing in exchange for a lower mortgage rate. Essentially, you’re paying more at the beginning of the loan to potentially save money over time through a reduced monthly payment.

For some homeowners, paying points can make sense. If you plan to stay in the home for many years, the monthly savings may eventually outweigh the upfront cost. This point at which your savings equal the amount you paid upfront is known as the break-even point.

However, paying points isn’t always the best choice. If you’re planning to move or refinance in the near future, you may not keep the mortgage long enough to recover the upfront expense. Some buyers may also prefer to keep their cash available for a larger down payment, closing costs, moving expenses, home improvements, or emergency savings.

The right decision depends on your personal situation, including your budget, financial goals, and how long you expect to keep the loan. Your loan originator can help you compare the costs and potential benefits of paying points so you can choose a mortgage strategy that best fits your plans.