Mortgage Discount Points Explained: Should You Buy Down Your Rate? (2026)

With 30-year fixed rates hovering near 6.7% in September 2026, DC metro homebuyers are looking for every edge to bring their monthly payment down. One of the most common strategies lenders pitch is "buying points" — paying upfront to permanently lower your interest rate. It sounds simple, but the decision is more nuanced than most buyers realize. The math only works if you hold the loan long enough to recoup the upfront cost through monthly savings. Sell too early or refinance before the break-even, and you lose money. Here is a plain-English breakdown of how mortgage discount points work, when they make sense, and when they do not.

What Are Mortgage Discount Points?

A discount point is a one-time fee you pay at closing in exchange for a lower interest rate for the life of the loan. One point equals 1% of your loan amount. On a $450,000 loan, one point costs $4,500. Each point typically reduces your rate by 0.25 percentage points, though the exact reduction varies by lender and market conditions — sometimes you can buy fractional points (like 0.5 or 0.125) for a smaller rate reduction.

Points are paid at closing alongside your other closing costs. They can sometimes be financed into the loan on certain programs, but most buyers pay them out of pocket or negotiate for the seller to cover them through seller concessions.

The Break-Even Math

The only way to know whether buying points is worth it is to calculate the break-even point — how long it takes for the monthly savings to equal the upfront cost. Here is the formula:

1. 1Calculate the monthly payment at the base rate (no points)
2. 2Calculate the monthly payment at the reduced rate (with points)
3. 3Subtract the reduced payment from the base payment — that is your monthly savings
4. 4Divide the cost of the points by the monthly savings — that is your break-even in months

If you plan to stay in the home (or keep the loan, without refinancing) past the break-even point, buying points saves you money. If you sell or refinance before the break-even, you would have been better off taking the higher rate.

Example: $450,000 Loan, 30-Year Fixed

In this example, buying one point makes sense if you expect to keep the loan for more than five years. If you sell or refinance before month 60, the upfront cost exceeds the savings.

When Buying Points Makes Sense

• You plan to stay in the home long-term — 7+ years is a safe cushion beyond the typical break-even
• You do not expect rates to drop significantly in the near term (if they do, you would refinance and the points become wasted money)
• You have cash available after your down payment and closing costs — points should not deplete your emergency reserves
• Your lender offers favorable pricing on fractional points — sometimes 0.5 points gets you 0.125% off at a good value ratio
• You are in a high-rate environment and want to lock in the best possible long-term cost of borrowing

When Points Are a Bad Idea

• You plan to move within 5 years — the break-even has not been reached
• You expect rates to fall and plan to refinance — your points disappear when you replace the loan
• You are stretching to cover the down payment and closing costs — adding points on top creates cash flow risk
• The lender's pricing on points is uncompetitive — some lenders charge more for the same rate reduction than others, which is why we shop across 100+ lenders
• You could use that cash for a larger down payment instead — dropping your loan-to-value below 80% eliminates mortgage insurance on conventional loans, which may save more than buying points

Points vs Seller Concessions

One of the smartest moves in a buyer's market (or when negotiating with a motivated seller) is asking the seller to pay for your discount points through a seller concession. The seller credits you cash at closing, you use it to buy down your rate, and you get a permanently lower payment without spending your own money. In the DC metro market of late 2026 — where homes are sitting longer and price reductions are more common — seller concessions for rate buydowns are increasingly available. We help our clients negotiate this as part of the offer strategy.

Tax Treatment of Points

Discount points paid on a purchase mortgage are generally deductible in the year you pay them, as long as the points are customary for your area and the loan is to buy or build your primary residence. Points paid on a refinance must be amortized over the life of the loan instead. This is not tax advice — always consult your tax professional — but it is a factor worth knowing, especially if you are itemizing deductions in a high-tax state like Maryland.

The Bottom Line

Mortgage discount points are a tool, not a default. They save real money over the long haul, but only if your timeline is long enough and your cash position is strong enough. The mistake we see most often is buyers buying points because the lender suggested it without running the break-even math. We run that math for every client — comparing zero-point rates, 1-point rates, and seller-funded buydowns across our entire lender network — so you can see the true cost and savings side by side. Reach out and we will model it for your specific purchase.