October 24th, 2025 3:41 PM by Sam Kader NMLS# 130505
A plain-English guide to points, rebates, and break-even math — written for Washington homebuyers and homeowners.
When you apply for a mortgage, you might hear lenders talk about “points.” It’s a common question from homebuyers: Do I have to pay points? Should I pay them? Let’s make sense of it in plain English.
When people request a mortgage quote, lenders are required to show both the interest rate and the points.
A point is a fee equal to 1% of your loan amount. Example: If your loan is $150,000, then 1 point = $1,500.
You will see any points clearly listed on your Loan Estimate.
Sometimes points are optional — and sometimes they are automatically included depending on your loan type and down payment.
Not everyone has to pay points. It depends on your loan type and how much you’re putting down.
For example, Fannie Mae may automatically include points on certain conventional loans — especially when your down payment is less than 40%, even if you have excellent credit.
So while some points are optional, others are built in based on your loan and risk profile.
Good Points (Discount Points)
Bad Points (Loan-Level Price Adjustments)
Let’s say you are borrowing $165,000 at a 6% interest rate with 0 points. Your principal and interest payment would be about $989 per month.
If you choose to pay 2 points ($3,300) at closing, your interest rate might drop to 5.5%, lowering your payment to around $937 per month — a savings of about $52 per month.
It would take around 64 months (about 5½ years) to earn back the $3,300 you paid upfront.
If you plan to keep the home and loan longer than that, paying points could be a smart move — and discount points may be tax-deductible — consult your tax professional.
You can also do the reverse — in this case instead of calling it a discount point, it’s called a rebate.
This means you accept a slightly higher interest rate, and the lender gives you a lender credit (rebate) to help cover some or all of your closing costs.
This lender credit is not free — it increases your interest rate and long-term cost in exchange for reducing your upfront cash needed.
This does not lower your monthly payment, but it reduces how much cash you need at closing, which can be very helpful if you want to keep more money in savings.
Paying points can be a smart way to lower your long-term costs — but only if you will stay in the home long enough to benefit.
The key question is: How long will it take to break even?
If you plan to stay beyond that point, paying points may be a smart, traditional way to reduce your long-term cost. If not, you may be better off keeping your cash.
I’ll walk you through whether paying points, taking a rebate, or keeping things level is the smartest move for your situation.
Interest rate and APR will vary depending on final loan structure.
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