Mortgage Points vs. a Higher Rate
Discount points are upfront costs paid to reduce a mortgage rate. The decision depends largely on break-even time and how long the loan is expected to remain in place.
Break-even concept
Divide the upfront point cost by the estimated monthly payment savings. The result is the approximate number of months needed to recover the cost.
Questions to ask
- How long do you expect to own the home?
- Is refinancing likely?
- Would using the cash for a larger down payment reduce other costs?
- How certain are the monthly savings?
Example
If points cost $4,000 and reduce the payment by $80 per month, the simple break-even period is about 50 months.