How Much Is One Point on a Mortgage

What One Mortgage Point Costs

One point on a mortgage costs 1% of the total loan amount. On a $300,000 home, a single point would be $3,000 at closing. This upfront fee is paid to the lender in exchange for a lower interest rate over the life of the loan, a process known as buying down the rate.

How Much Rate Reduction You Get Per Point

The rate reduction per point is not fixed by law; it varies by lender, loan type, and market conditions. In many current markets, one point lowers the interest rate by roughly 0.25%, though some lenders quote a 0.20% reduction and others offer closer to 0.30% depending on the day and the product.

Example of Savings

On a 30-year fixed $300,000 mortgage, a 0.25% reduction from one point might save about $15 to $25 per month, or roughly $5,400 to $9,000 over the full term, assuming the rate holds for the life of the loan.

When Buying Points Makes Sense

Points are most worthwhile if you plan to stay in the home long enough to recoup the upfront cost. Divide the cost of the point by the monthly savings to find your break-even point. If the break-even is five years and you expect to keep the mortgage for ten or more, buying a point can be a sound financial move.

Types of Mortgage Points

• Discount points: Prepaid interest that lowers your rate.
• Origination points: Fees the lender charges for processing the loan; these do not reduce your rate.

Tax Treatment

Discount points are often fully deductible in the year you close, provided they meet IRS rules and the loan is your primary residence. Consult a tax advisor for your specific situation, as deductibility depends on how the points were calculated and whether they were customary in your area.

Deciding Whether to Buy a Point

Run the numbers using your actual loan estimate. Compare the monthly payment and total interest with and without points, and weigh that against your expected timeline in the home. If you are refinancing or taking a shorter-term loan, the break-even may come faster, making points more attractive.