Mortgage Points:
Buy Down Your Rate, Save Thousands

Typically 0.25% per point, but this varies. In some rate environments, a point might reduce your rate by 0.125% or as much as 0.375%. It depends on the lender, the loan type, and market conditions. The rate reduction per point is less when rates are already low and more when rates are higher. Always ask your lender for a rate sheet showing the cost at different rate levels — this lets you calculate the exact break-even for each option. Dream Financial Management's 500+ lender network can show you points pricing across multiple lenders simultaneously.

Yes, discount points are tax-deductible as mortgage interest if you itemize deductions. The IRS treats points as prepaid interest. For a purchase loan, points are fully deductible in the year paid. For a refinance, points must be amortized (deducted ratably) over the life of the loan — e.g., $3,000 in points on a 30-year refinance = $100/year deduction. Origination points (lender fees) are generally not deductible. Always consult a tax professional about your specific situation.

Negative points (lender credits) work in reverse: the lender gives you money at closing in exchange for a higher interest rate. This reduces your out-of-pocket closing costs but increases your monthly payment. It can make sense if: you're short on cash for closing, you plan to sell or refinance soon, or the seller is paying closing costs and you want to maximize their contribution. Example: accepting a rate 0.25% higher might give you a 1-point credit ($3,000 on a $300,000 loan). This is the mirror image of buying points — you're being paid to take a higher rate.

Both reduce your monthly payment, but in different ways. A larger down payment reduces your loan amount and may eliminate PMI. Points reduce your rate. Generally: prioritize reaching 20% down to eliminate PMI first (this is usually a better return than buying points). Then, if you have extra cash and plan to stay long-term, consider points. Example: putting an extra $6,000 toward your down payment on a $300,000 loan at 6.5% saves ~$39/month. Using that same $6,000 for 2 points at 6.0% saves ~$97/month. Points give a bigger monthly savings per dollar — but the down payment also builds equity and eliminates PMI. Run both scenarios with your lender.

Yes, seller concessions can be used to pay for discount points. This is a common negotiation strategy: you offer a slightly higher purchase price in exchange for the seller paying your points (and other closing costs). The seller effectively buys down your rate. This works well in buyer's markets or when the seller is motivated. Conventional loans allow seller concessions up to 3-9% of the purchase price depending on your down payment percentage. FHA allows up to 6%. VA allows up to 4% (plus reasonable closing costs). Seller-paid points are tax-deductible for the buyer.