A Mortgage Point Buys Months, Not a Rate

The headline rate is marketing.

What makes the calculation harder than it looks is that the timeline can collapse without warning. A refinance, a sale, or a recalculation of the tax deduction can reset your break-even to zero overnight. The IRS rules on this are coldly specific, and the national rate surveys most borrowers glance at are built from averages that do not match any single closing table.

What a point is on paper—and on your 1098

One discount point costs one percent of the loan amount. On a $300,000 mortgage, that is $3,000. In exchange, the lender shaves the note rate. Freddie Mac’s Primary Mortgage Market Survey (PMMS) provides a national average of points charged during the survey week alongside the average rate. The survey is typically released on Thursdays—on Wednesdays when a holiday falls on a Thursday—and on May 7, 2026, the 30-year fixed averaged 6.37%. But the points figure in that release is not a binding quote; it is the average of what lenders across the country offered for mortgages at that survey rate.

The IRS calls discount points “prepaid interest” for good reason. When you pay them, you are trading cash today for a smaller monthly payment over the life of the loan. The agency’s Topic 504 is plain about that: each point paid lowers the interest rate on monthly mortgage payments. So the true cost is not the $3,000 in a vacuum; it is the time you must hold the loan to recover it in lower payments. And that recovery is measured in months, not percentage points.

Where points appear in the closing pile

You will see the dollar amount of points in two places that matter: the Loan Estimate you receive three business days after applying, and the Closing Disclosure that lands three days before the signing table. Both are creatures of the TILA-RESPA Integrated Disclosure rule. The Closing Disclosure, on its first page, places loan information—rate, loan amount, and the fees you are paying to get that rate—right at the top. Points sit there.

The problem is that the same section may combine discount points (the prepaid interest you chose) and origination points (the lender’s fee for doing the loan). The Closing Disclosure groups them. If you cannot separate the two, you risk treating an origination charge as if it were buying you a lower rate when it is not. For break-even math, only the discount points count.

When points help at tax time—and when they do not

Tax treatment splits cleanly between a purchase and a refinance, and getting it wrong can change the break-even math you thought you had locked in. For a loan used to buy or build your main home, points may be fully deductible in the year you pay them, provided you meet the IRS conditions laid out in Publication 936. That deduction puts cash back in your pocket in April, shortening the time it takes for the points to earn their keep.

Refinance points play by a different rulebook. They are generally not deductible in full in the year paid. Instead, you must spread the deduction over the term of the new loan. On a 30-year refinance, that means deducting 1/30th of the points each year. And if you refinance again with the same lender, the IRS is even stricter: any remaining undeducted balance of the points from the prior loan cannot be taken in the year of the new refinance. You deduct what is left over the term of the replacement loan, per Publication 936 and Publication 530. That rule alone can push a break-even point years further out than the simple monthly-savings math suggests.

The break-even calculation you have to run yourself

The math is not complicated, but lenders rarely run it for you, and no regulator publishes a standardized worksheet for it. You need three numbers: the dollar cost of the discount points, the monthly principal-and-interest payment at the rate with points, and the monthly payment at the rate without them. The payment figures must be on the same loan amount, same term, and same amortization schedule. Subtract the lower payment from the higher payment. That is your monthly savings. Then divide the dollar cost of the points by that monthly savings. The result is the number of months you must keep the loan just to get back to even.

On a $320,000 loan, if paying one point ($3,200) drops the payment by a certain amount monthly, the break-even can be calculated by dividing the point cost by that savings. Past that point, the lower rate puts you ahead. Before it, you have lost money compared with taking the no-point rate. This is why comparing the rate reduction in basis points is a trap. A quarter-point rate cut sounds like a lot. In dollars per month, it can be small enough that the break-even stretches beyond the time most people own the note.

Why the timeline can collapse overnight

Most borrowers do not keep a 30-year mortgage for 30 years. They sell, they refi, or the loan gets recast. Any of those events resets the break-even clock. If you paid $4,000 in points and your recovery path was 68 months, a refinance at month 40 means you threw away the remaining 28 months of savings you had not yet collected. The IRS rules make the sting worse on a same-lender refinance, because the unamortized points deduction from the prior loan now gets stretched over the new loan’s term, delaying the tax benefit you were counting on.

Even a sale ends the calculation cold. You recover none of the prepaid interest. The points you paid walk out the door with the deed. This is why a break-even month that looks manageable on a spreadsheet can become a bad bet when life intervenes.

What to use instead of the national survey rate

The Freddie Mac survey is a benchmark, not a quote. The PMMS averages points and rates from lenders across the country who offer conventional, conforming loans with a 20% down payment and excellent borrower credit. That composite does not tell you what a specific lender will charge you on a Thursday afternoon in your county. The only numbers that count for your break-even are on your Loan Estimate and, later, your Closing Disclosure. Those are the figures you plug into the division above.

PMMS is useful for spotting rate trends. It is not useful for deciding whether points make sense for your loan. The same caution applies to any rate table you see in a news article or an email blast. Unless it is accompanied by a dollar-cost figure and a monthly payment comparison specific to your loan amount, it cannot answer the only question that matters: how long until I am ahead?

The break-even month is the unit of decision, not the interest rate. If the loan does not survive that many months, the points are a donation to the lender.