Why I Rarely Recommend Paying Points
When choosing a mortgage, many borrowers focus on getting the lowest possible interest rate.
Often, that lower rate requires paying points.
What are points?
Points are prepaid interest.
You pay money upfront at closing in exchange for a lower interest rate and lower monthly payment.
In simple terms, you are trading cash today for savings over time.
When Points Can Make Sense
Paying points can make sense if:
You plan to keep the mortgage for a long time.
The break-even period is short.
The monthly savings clearly outweigh the upfront cost over your expected time horizon.
However, this is where many borrowers miscalculate.
The Time Horizon Reality
The average homeowner keeps a mortgage approximately five to six years before refinancing or selling.
If it takes seven or eight years to recover the cost of the points you paid, you may never actually benefit from that lower rate.
In that case, you prepaid interest but did not remain in the loan long enough to realize the savings.
A More Flexible Approach
For many clients, I prefer one of two structures:
Little to no points upfront.
Or an interest rate that includes a lender credit.
A lender credit means the lender contributes money toward your closing costs in exchange for a slightly higher interest rate.
Why would someone choose that?
Because it preserves flexibility.
If rates drop in a few years and you refinance, you have not sunk thousands into prepaid interest.
If you sell sooner than expected, you avoid losing upfront costs that you never recovered.
The Real Goal
The lowest rate is not automatically the best loan.
The best loan is the one with the lowest total cost over the time you realistically expect to keep it.
Points are not inherently bad.
They simply require time to work.
If your time horizon is uncertain, flexibility is often the smarter choice.
