Should you buy points? A break-even you can actually run

A discount point costs 1% of your loan amount and buys your rate down. How far down varies daily — a point might buy 0.25%, or 0.125%, or occasionally more, depending on what investors are paying for the coupon that day.

The decision looks like a rate question. It is actually a duration question: how long will you keep this exact loan?

The naive break-even

Here is the version every calculator shows, on a $400,000 loan:

One point costs $4,000
It drops the rate from 6.75% to 6.50%
Payment falls from $2,594 to $2,528 — a saving of $66/month
$4,000 ÷ $66 = 61 months, about five years

So: keep the loan longer than five years, buying the point wins. Shorter, it loses.

That framing is directionally right and quantitatively wrong, in two ways that both matter.

Adjustment one: the money had somewhere else to be

The $4,000 is not free money sitting idle. It could have gone to your down payment, reducing the loan and possibly your LTV tier. It could have stayed in reserves. It could have earned something.

Compare against your genuine alternative. If that $4,000 would otherwise sit in a savings account earning a few percent, the opportunity cost is real and it pushes the break-even out by months. If it would otherwise be spent, the break-even stands roughly as calculated.

A note on the down-payment alternative specifically: putting the $4,000 toward the purchase instead can occasionally be worth more than the point, if it drops you across an LTV threshold and removes or reduces mortgage insurance. Run that version before deciding.

Adjustment two: the deduction, if it applies to you

Mortgage interest and discount points can be deductible — points on a primary-residence purchase are generally deductible in the year paid, while points on a refinance are typically amortised over the loan term.

But this only changes the arithmetic if you itemise. Since the standard deduction rose, most households do not. If you take the standard deduction, ignore this entirely. If you itemise, it modestly shortens the break-even, and the details are worth asking a tax professional about rather than guessing.

The line most calculators get wrong

Here is the real flaw: the naive break-even compares monthly payments and stops there.

Two loans at different rates amortise differently. The lower-rate loan pays down principal slightly faster, so at any point before payoff you owe less on it. When you sell or refinance, that difference comes back to you in cash.

So the honest comparison at your exit month is:

(cumulative payment savings) + (difference in remaining principal) − (cost of the point)

The principal term usually favours the point and pulls the break-even in by several months. It is small relative to the payment savings, but it is real, and it moves the answer in the opposite direction from the opportunity-cost adjustment.

When points are clearly wrong

You can skip the arithmetic entirely in these cases:

You might move within five years. Job uncertainty, a growing family, a starter home — any of these makes a long break-even a bad bet.
Rates are expected to fall and you would refinance. Refinancing resets everything; the unrecovered portion of the point is simply gone. Paying to buy down a rate you plan to abandon is paying twice.
The cash would leave you without reserves. Liquidity after closing matters more than sixty dollars a month. A depleted emergency fund is a far more expensive problem than a slightly higher rate.
It would push you below a down-payment threshold. If spending the cash on points drops you under 20% and triggers PMI, the point is almost certainly the worse use of the money.

When they are clearly right

You are confident this is a long-term home and the break-even lands well inside your horizon.
A seller or builder credit is paying for them. A seller-paid buydown that you were not otherwise going to capture as a price reduction is close to free. Check whether taking it as a price cut would serve you better — sometimes it does — but a credit you cannot convert to cash is best spent here.
You have surplus cash and want a guaranteed return. The point's effective return is known and risk-free in a way few things are, provided you hold the loan.

The question to ask your lender

Ask for the same loan quoted at three point levels — zero points, one point, and a lender credit — on the same day, same lock period. Then run the comparison above at your honest holding horizon, not at 30 years.

If the lender cannot produce that in a few minutes, that itself is information.

If you want those three scenarios priced against your actual loan amount, down payment, and timeline — including the version where the cash goes to the down payment instead — Bloom Lending will lay them side by side and tell you which one wins for you.