Should you buy points?

Do the math before you buy the rate down

When you buy your interest rate down, you're paying money up front to save money on your monthly payment. At some point the math flips and you start coming out ahead. That point is called the breakeven.

The catch: that breakeven may be 5 years or more down the road. If you sell, refinance or pay the loan off before then, you may have paid for savings you never got to use.

How to find your breakeven

1. Take the cost of the points. One point usually equals 1% of the loan amount.
2. Find your monthly savings: your payment at the higher rate minus your payment at the lower rate.
3. Divide the cost by the monthly savings. That's how many months it takes to break even.

Example: On a $350,000 loan, 1 point costs $3,500. If it saves you $58 a month, the breakeven is about 60 months, or 5 years. Keep the loan longer than that and the points start paying you back. Sell or refinance sooner and they cost you money.

Questions to ask yourself

• How long do I realistically plan to keep this home and this loan?
• Would I refinance if rates drop? If so, the points may not have time to pay off.
• Is that cash better used for my down payment, closing costs or savings?
• Could a seller credit cover the cost of the points instead?

Points aren't good or bad. They're a tool. I'll show you the par rate (no points), what each point buys you, and where the breakeven lands, so you can decide with real numbers.