Should You Buy Mortgage Points? What Solano County Buyers Need to Know

Last updated April 12, 2026 by Tim Stacey, Stacey Solutions powered by Xpert Home Lending, Inc NMLS 2179191.

How Mortgage Points Work

A mortgage point is a form of prepaid interest. When you buy points at closing, you’re essentially paying interest upfront in exchange for a lower rate over the life of the loan. One point equals 1 percent of the loan amount. On a $500,000 mortgage, one point costs $5,000.

The rate reduction per point varies by lender and market conditions, but a common benchmark is roughly 0.25 percent per point. So if you’re quoted 6.75 percent, buying one point might bring you to 6.5 percent. Buying two points could get you to 6.25 percent. The more points you buy, the lower the rate, though there’s usually a diminishing return after two or three points.

The Break-Even Calculation

The core question with points is how long it takes for the monthly savings to exceed the upfront cost. This is your break-even point. If buying one point on a $500,000 loan costs $5,000 and saves you $75 per month, the break-even is about 67 months, or roughly five and a half years.

If you plan to stay in the home longer than the break-even period, buying points saves money over the life of the loan. If you might sell or refinance before then, the upfront cost isn’t recovered and you would have been better off keeping that cash. This is why the decision is so closely tied to your plans for the property.

When Buying Points Makes Sense

Points tend to make the most sense for buyers who are confident they’ll stay in the home for at least five to seven years and who have extra cash available beyond their down payment and closing costs. If you’re buying a long-term home in Vacaville or Fairfield and you have the funds, locking in a lower rate with points can save tens of thousands of dollars in interest.

Points can also make sense when interest rates are high and you expect them to stay elevated. In that environment, the rate reduction from points provides more value because you’re less likely to refinance into a significantly lower rate anytime soon.

When Points Don’t Make Sense

If you’re planning to move or refinance within the next few years, buying points is usually not worth it. You won’t hold the loan long enough to recoup the upfront cost. The same applies if paying for points would stretch your cash reserves too thin. Having adequate savings after closing is more important than saving an eighth of a percent on your rate.

First-time buyers who are already working to cover the down payment and closing costs should generally skip points and put that money toward a stronger financial cushion. There’s always the option to refinance later if rates drop.

Points on VA Loans

Veterans and active-duty service members can buy points on a VA loan just like any other mortgage. One additional consideration for VA buyers is that discount points are an allowable seller concession. That means you can negotiate for the seller to pay for points as part of the purchase agreement, which lowers your rate without costing you anything out of pocket.

For military families near Travis Air Force Base, this can be a powerful strategy, especially in markets where sellers are motivated to make concessions. I’ve structured deals where the seller covers points and the buyer ends up with a rate that significantly reduces their monthly payment compared to the list price offer.

Tax Considerations

Mortgage points paid on a purchase loan are generally tax-deductible in the year you pay them, as long as the loan is for your primary residence and you meet certain IRS requirements. Points paid on a refinance are typically deducted over the life of the loan. This potential tax benefit can improve the overall return on buying points, though it depends on your individual tax situation. Consult a tax advisor for specifics.

Frequently Asked Questions

How much does one mortgage point cost?

One point costs 1 percent of your loan amount. On a $500,000 loan, one point is $5,000. On a $400,000 loan, it’s $4,000. You can buy fractional points as well.

How much will points lower my rate?

Each point typically reduces your rate by about 0.25 percent, though the exact amount varies by lender and market conditions. Your loan officer can show you the specific rate options at different point levels.

Can the seller pay for my mortgage points?

Yes. Seller-paid discount points are allowed on most loan types, including VA, FHA, and conventional loans. This can be negotiated as part of the purchase agreement and reduces your rate without increasing your out-of-pocket costs.

Are mortgage points the same as origination fees?

No. Discount points are optional prepaid interest that lowers your rate. Origination fees are lender charges for processing the loan. They’re listed separately on your Loan Estimate and serve different purposes.

Is it better to buy points or make a larger down payment?

It depends on your priorities. A larger down payment reduces your loan amount and monthly payment, and may help you avoid PMI. Buying points reduces your interest rate. The best choice depends on your cash position, how long you’ll keep the loan, and whether PMI elimination is a factor.

Let’s Run the Numbers on Points

The decision to buy points is all about the math and your plans for the property. I run break-even analyses for every client so the choice is clear and based on real numbers. Whether you’re buying in Vacaville, Fairfield, or anywhere in Solano County, reach out and let’s figure out if points make sense for your loan.