How do discount mortgage points work and what is the break-even period?

One mortgage discount point equals 1% of your total loan amount paid upfront at closing to permanently lower your interest rate by approximately 0.25% (25 basis points). For example, on a $400,000 mortgage at 6.75%, buying 1 point costs $4,000 cash upfront and lowers your rate to 6.50%, reducing your monthly principal-and-interest payment from $2,594 to $2,528—a savings of $66 per month. To find your break-even point, divide the upfront cost by the monthly savings ($4,000 ÷ $66 = ~60.6 months, or 5.05 years). If you plan to sell the home, refinance, or pay off the mortgage before 5 years, paying points is a guaranteed loss; if you stay 10+ years, buying points generates substantial net interest savings.