Rates & costs

Discount points vs. lender credits: the math

Educational guide · Updated 2026

When you get a mortgage quote, you can often adjust the relationship between your upfront costs and your interest rate. Pay more upfront to get a lower rate (discount points), or accept a higher rate in exchange for the lender covering some of your closing costs (a lender credit). Which is better comes down to math — specifically, your breakeven point.

Breaking even on points

Paying 1 point ($3,500 on a $350,000 loan) to lower your rate by 0.25% saves about $58/month. Divide $3,500 ÷ $58 = 60 months to break even. If you plan to stay more than 5 years, buying the point saves money. If you might move or refinance sooner, take the lower rate via lender credits instead.

What discount points are

One discount point typically costs 1% of your loan amount and lowers your interest rate by a set amount (often around 0.25%, though it varies). You're essentially prepaying interest to secure a lower rate for the life of the loan. On a $400,000 loan, one point costs $4,000.

What a lender credit is

A lender credit is the mirror image: you accept a slightly higher rate, and in return the lender gives you money toward your closing costs. This lowers your cash needed at closing but raises your monthly payment. It's useful when you're short on cash upfront.

Finding your breakeven

The key question for points: how long until the monthly savings repay the upfront cost? If a point costs $4,000 and lowers your payment by $60 a month, your breakeven is about 67 months — roughly 5.5 years. If you'll keep the loan (and the home) well beyond that, buying the point can pay off. If you might sell or refinance sooner, you'd lose money.

The deciding factor is how long you'll keep the loan

Points reward people who stay put; credits reward people who are cash-tight or expect to move or refinance soon. Neither is universally "better." Run your own breakeven against how long you realistically expect to hold the loan before deciding.

Frequently asked questions

Are discount points tax deductible?

Generally yes, in the year paid on a purchase. On a refinance, they're typically deducted over the life of the loan. Confirm with a tax professional.

What if I refinance before breaking even?

You lose the money you paid for points. This is the main risk — always calculate your break-even before deciding.

Can I negotiate lender credits?

Yes. Lender credits are essentially the opposite of points — you take a higher rate and the lender applies the premium toward your closing costs. Both are negotiable.

This article is educational and general in nature. Terms, costs, and rules vary by lender, provider, state, and your individual situation. Confirm details with a licensed professional.