Understanding Mortgage Points: Should You Pay to Lower Your Rate?

Homebuyers can save over $15,000 in interest by buying mortgage points—but many don’t even know they exist. If you’re planning to take out a home loan, understanding mortgage points could help you lower your monthly payment and reduce how much you pay over the life of the loan.

But are mortgage points always worth it? How much do they cost? And when should you buy them?

This guide breaks it all down in simple, clear terms so you can decide if mortgage points are right for you.

What Are Mortgage Points?

Mortgage points are upfront fees you pay to your lender to get a lower interest rate. They’re also called discount points because they “discount” or reduce your rate.

1 mortgage point = 1% of your loan amount
Each point lowers your interest rate by about 0.25%

Example: If your loan is $300,000:

1 point costs $3,000

It might reduce your rate from 7.0% to 6.75%

Why Do Lenders Offer Points?

Lenders make money from interest. By paying some of that money upfront, you’re essentially prepaying interest to get a better deal over time.

It’s a win-win:

You save money over the long run
The lender gets money upfront

Pro Tip: You don’t have to buy points—it's optional. Think of it like buying an extended warranty on a product: sometimes worth it, sometimes not.

How Much Can You Save with Points?

The actual savings depend on your loan amount, rate, and how long you stay in the home. Here’s a simple example:

Without Points:

Loan: $300,000
Interest: 7.0%
Monthly payment (principal + interest): $1,996
Total interest over 30 years: $418,527

With 2 Points:

Rate reduced to 6.5%
Monthly payment: $1,896
Total interest: $382,633
Total interest savings: $35,894
Cost of points: $6,000

Net savings over loan life: $29,894

What’s the Break‑Even Point?

Your break-even point is the number of months it takes for your monthly savings to outweigh the upfront cost of the points.

Example:

Cost of points: $6,000
Monthly savings: $100
Break-even: 60 months (5 years)

So if you stay in the home longer than 5 years, buying points makes sense. If not—you lose money.

Pro Tip: Only buy points if you plan to stay put for a while.

How Many Points Can You Buy?

Lenders usually allow you to buy up to 3 points—sometimes more, sometimes less. It depends on the lender and market conditions.

Here’s a general range:

Points	Rate Reduction (approx.)
0	7.00%
1	6.75%
2	6.50%
3	6.25%

Note: Rate reductions vary. Some lenders may only reduce 0.125% per point. Always confirm.

Are Mortgage Points Tax Deductible?

In many cases, yes.

If the loan is for your primary residence
If the points are used to buy (not refinance) the home
And if they’re itemized on your closing statement

Then you may deduct them the same year you pay.

For refinances, you usually deduct the points over the life of the loan.

Pro Tip: Always consult a tax advisor to confirm eligibility.

When Buying Points Makes Sense

✅ You Plan to Stay in the Home Long-Term

If you’ll be there at least 5–7 years, you’ll likely benefit.

✅ You Have Extra Cash at Closing

If you’ve saved more than your down payment and closing costs, investing in points can earn you better returns than a savings account.

✅ You Want a Lower Monthly Payment

Even a $50–$100 drop in your monthly bill adds up over time.

Stat: In a 2024 survey, 46% of homeowners who purchased points said they broke even in under 4 years.

When You Should Skip Points

❌ You’re Short on Cash at Closing

Closing costs already average $5,000–$10,000. If adding points stretches your budget, it’s probably not worth it.

❌ You Might Sell or Refinance Soon

If you move or refinance before hitting the break-even point, you lose money.

❌ You Qualify for a Low Rate Already

If your rate is already excellent (thanks to a great credit score), the marginal savings from buying points may be small.

Pro Tip: You can negotiate with the lender to use points to cover closing costs instead of lowering your rate. This is called a lender credit or negative points.

Are Points Available for All Loans?

Most loan types allow points, but the specifics vary.

Loan Type	Can You Buy Points?	Notes
Conventional	✅ Yes	Most flexible
FHA	✅ Yes	Still subject to limits
VA	✅ Yes	Max points usually capped
USDA	✅ Yes	Restrictions may apply

Pro Tip: On VA loans, you may be limited to buying 2 points max.

Alternatives to Mortgage Points

If you don’t want to pay points, consider:

💡 Making a Larger Down Payment

This can reduce your loan-to-value ratio and qualify you for better rates without points.

💡 Improving Your Credit Score

Even a 20–30 point boost in your credit can get you a lower rate—without buying points.

💡 Shortening the Loan Term

15-year loans typically come with lower rates than 30-year loans.

Should You Buy Points in Kenya?

While the term “mortgage points” isn’t commonly used in Kenya, some banks and mortgage lenders offer a similar concept through rate buy-downs or negotiated interest discounts.

Banks like:

NCBA
KCB
Absa
Cooperative Bank

...may offer slightly lower rates for customers who:

Put down a larger deposit
Pay a higher initial fee
Maintain high credit ratings

Pro Tip: Always ask your lender, “Can I pay more upfront to get a lower interest rate?”

Even a 1% drop in your mortgage rate in Kenya could save you hundreds of thousands of shillings over 10–15 years.

How to Decide If Mortgage Points Are Worth It

Ask yourself these questions:

How long will I stay in the home?
Do I have the extra cash for points after down payment and closing costs?
What’s my break-even point?
Will I save more by investing that money elsewhere?

Affiliate Link: Use this Mortgage Points Calculator to instantly find your break-even time and total savings.

Final Thoughts: Are Mortgage Points a Smart Move?

Mortgage points can be a great way to save money—if you plan to stay in your home long enough. But they’re not for everyone.

They require upfront cash and commitment, so be sure to:

Crunch the numbers
Understand your goals
Compare multiple lender offers

So—would you pay more today to save over the next 30 years?

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