Points are a side bet on loan longevity
The rate sheet offers you the same loan at several price/rate combinations — points are prepaying interest to slide down that curve. The bet only pays if the loan survives past break-even. Two exits kill it: selling, which people at least anticipate, and refinancing, which they don't — buying points at a rate peak is close to self-defeating, because the same falling rates that would tempt you to refinance are what vaporize the points you bought.
The checklist before paying for points
- Get the two-rate quote and compute break-even from real numbers (calculator) — point pricing varies by lender and day; the 0.25%-per-point rule is only a sketch.
- Honest horizon: average tenure in a first home runs shorter than people predict. If break-even is past year 5 and your horizon is fuzzy, skip.
- Rate outlook: expect to refinance within a few years? Points are the first casualty. See when refinancing is worth it.
- Compete the cash: the same dollars could raise your down payment (possibly cutting PMI — a guaranteed win) or stay liquid. Compare in the down payment calculator.
Lender credits: points in reverse
The same curve runs the other way — accept a slightly higher rate, receive closing credits. For short expected stays this is often the genuinely optimal corner of the rate sheet, and almost nobody asks for it. Model it by treating the credit rate as your baseline in the calculator. Whichever direction you trade, the principle is identical: match the loan's pricing to how long you'll actually keep it.