How Mortgage Points Work (And When You Should Buy Them)

When you’re buying a home in California—especially in competitive markets like Roseville, Rocklin, and Loomis—every bit of savings helps. One strategy many buyers overlook is purchasing mortgage points, a tool that can lower your interest rate and reduce your long-term costs. But mortgage points aren’t right for everyone, and knowing when they make sense can save you thousands.

Below is a simple guide to understanding what mortgage points are, how they work, and how to decide whether they’re a smart move for your home loan.

What Are Mortgage Points?

Mortgage points, also known as discount points, are an optional fee you can pay upfront to reduce your mortgage interest rate. One point typically costs 1% of your loan amount and usually lowers your rate by 0.25%, though the exact amount varies by lender and market conditions.

Example:
If you’re borrowing $500,000, one point would cost $5,000.

How Mortgage Points Reduce Your Monthly Payment

By lowering your interest rate, points reduce your monthly mortgage payment for the entire life of the loan.

Here’s a quick example:

While $80/month may not seem huge, that adds up to more than $28,000 over 30 years.

When Does Buying Points Make Sense?

Mortgage points can be a great financial decision—but only in the right situations. Here’s when they’re worth considering:

✅ 1. You’ll Be in the Home for a While

To make points worthwhile, you’ll want to stay in the home long enough to break even on the upfront cost.

Break-even formula:
Cost of points ÷ monthly savings = months to break even.

If that break-even point is 3–6 years, mortgage points may be a smart investment.

✅ 2. You Have Extra Cash at Closing

In competitive markets like Roseville, many buyers stretch their budget for down payment and closing costs. If you have extra cash, allocating it toward points could reduce long-term interest expense.

✅ 3. You Want a Lower Monthly Payment

If monthly affordability matters more than keeping upfront costs low, points can help you qualify more easily—or simply feel more comfortable with your payment.

When Mortgage Points Don’t Make Sense

❌ You Plan to Move or Refinance Soon

If you expect to sell or refinance within a few years, you may not recoup the upfront cost.

❌ You’re Using Down Payment Assistance (Like CalHFA)

Many programs don’t allow or benefit from mortgage points since the payment structure is already optimized.

❌ You Need Cash for Repairs or Emergencies

It’s usually better to keep savings accessible than to spend every dollar on lowering your interest rate.

Should You Buy Mortgage Points in Today’s Market?

Interest rates in California have fluctuated throughout 2024–2025. Many buyers use mortgage points to manage affordability while waiting for potential rate improvements down the road. If rates fall significantly later, refinancing may still make sense—but the savings from points can help in the short term.

How Much Can You Save with Mortgage Points?

Every borrower’s situation is unique, but here’s a general idea:

• 1 point ≈ 0.25% reduction

• 2 points ≈ 0.50% reduction

However, the price and rate reduction vary depending on loan type, credit score, and lender.

This is why working with a local mortgage expert in the Roseville area can help you compare the return on investment and see whether buying points is the right choice for your loan.

The Bottom Line

Mortgage points in California can be a powerful way to lower your interest rate and monthly payment—but only if they align with your budget and long-term plans. For California buyers who expect to stay in their home for several years, points can offer meaningful savings.

If you’re considering mortgage points for a home purchase in Roseville, Rocklin, or Loomis, contact us or fill out the form below to get started.