TL;DR: Buying points lowers your rate and payment but costs cash now. Taking a lender credit raises your rate but cuts cash to close. Use break‑even math to see which wins for your horizon and liquidity. Calculator + case studies below.
Contents
- Live Break‑Even Calculator
- Primer: What Points & Credits Actually Do
- The Math: Payments, Break‑Even, IRR (cash vs rolled‑in)
- Real‑Number Case Studies
- How‑To: Decide in 7 Practical Steps
- Negotiation Scripts & Guardrails
- CRM Playbook (Approval & Pricing)
- FAQ (10)
Live Break‑Even Calculator
Loan amount ($)Term (years)Rate A — with points (%)Rate B — with credit (%)Points A ($ paid for points)Credit B ($ lender credit)Finance points in A? (0/1)Calculate
Primer: What Points & Credits Actually Do
Discount points are prepaid interest; 1 point = 1% of the loan amount. You pay now to buy a lower rate. Lender credits do the opposite: accept a slightly higher rate and receive a dollar credit that reduces cash to close. Break‑even math compares the incremental upfront to the incremental monthly savings.
- Use identical loan type/term/lock across quotes; otherwise math lies.
- Exclude prepaids/escrows from break‑even; they don’t change with rate choice.
- Watch LTV/MI tiers—rolling points into principal can push you into worse pricing.
The Math: Payments, Break‑Even, IRR (cash vs rolled‑in)
Payment formula (=PMT(R/12, N, -L)) gives monthly principal & interest. Two paths:
- Cash path — pay points in cash. Incremental upfront = points_A + credit_B; savings = P&I_B − P&I_A. Break‑even months = upfront ÷ savings.
- Rolled‑in path — finance points; principal rises, savings shrink. Upfront difference uses actual cash to close (often favors the credit option initially).
Optional: compute a quick annualized return on points with =RATE(H, ΔPmt, -ΔUpfront)*12 where H is your expected holding months.
Real‑Number Case Studies
| Scenario | Loan | Rates | Upfront (Δ) | Monthly Δ | Break‑Even |
|---|---|---|---|---|---|
| Cash points (long horizon) | $300,000 / 30y | A: 6.250% (1.0 pt) vs B: 6.625% (0.25% credit) | $3,000 + $750 = $3,750 | ≈ $73.78 | ≈ 51 months |
| Points financed (credit on B) | $300,000 / 30y | A: 6.250% (1.0 pt, financed) vs B: 6.625% (+$750 credit) | $0 − (−$750) = $750 | ≈ $55.31 | ≈ 14 months |
| Short horizon buyer | $420,000 / 30y | A: 5.875% (0.75 pt) vs B: 6.125% (0.125% credit) | ≈ $3,150 + $525 | ≈ $96 | ≈ 38 months → credits win if moving in ≤ 3y |
If you plan to prepay principal aggressively, the value of points shrinks because you’d be reducing interest naturally.
How‑To: Decide in 7 Practical Steps
- Collect two same‑day Loan Estimates: (A) lower rate with points, (B) higher rate with credit.
- Run the calculator (cash & rolled‑in versions).
- Stress‑test: +0.25% rate and +$1,000 fees; ensure decision still holds.
- Check liquidity: emergency fund must remain intact after closing.
- Verify LTV/MI tiers if financing points; don’t cross 80% without modeling MI impact.
- Ask for float‑down policy and lock‑extension fees in writing.
- Pick, lock, and re‑price once before signing if market improved.
Negotiation Scripts & Guardrails
- Full LE request: “Please send itemized Loan Estimates for both options today. I compare by APR, total cash to close, and break‑even months.”
- Points sanity check: “Quote 0‑point and 1‑point. What rate delta do I get per point today?”
- Float‑down: “If pricing improves during my lock, what are the eligibility triggers and fees to float down?”
- Extension control: “Confirm lock extension costs per 7/15 days—I’ll schedule closing to avoid them.”
- Guardrails: keep emergency fund; don’t finance points that push you into worse LTV/MI; avoid prepayment penalties.
CRM Playbook (Approval & Pricing)
- Data completeness: submit full docs at once (income, assets, ID). Partial files get deprioritized in underwriting.
- Momentum signal: schedule appraisal immediately; deals with milestones move faster and sometimes price better.
- Competitive anchor: get 2–3 quotes same day; many lenders match or offset fees to win.
- Credit hygiene: keep utilization low; no new inquiries until closing.
- Weekly cadence: short email: “Anything blocking underwriting today?”
FAQ
Is a lower rate always worth it? No. If your horizon is short, points won’t break even—credits/liquidity win.Should I roll points into the loan?Only if you must preserve cash and LTV/MI tiers stay favorable—compute the rolled‑in break‑even separately.What’s a “good” break‑even time?Common target: under 24 months, but it must sit well inside your expected holding period.Which fees are negotiable?Lender fees, points, and sometimes third‑party line items. Taxes/recording are mostly fixed.Do multiple quotes hurt my credit?Rate‑shopping in a short window typically scores as one inquiry.What about ARMs?Points buy less if you’ll exit before first adjustment; value the shorter savings window.How do taxes and MI affect the choice?Model after‑tax effects only if meaningful; avoid MI increases from financing points over key LTV tiers.Is “no‑cost refi” really free?No—costs are paid via a higher rate. Capture the credit and run the math.Can I refinance again later?Yes, but serial refinances can erode gains via repeated costs; keep documentation to evaluate future offers quickly.What documents should I prepare?Government ID, paystubs/W‑2 or 1099, bank/asset statements, insurance, payoff statement for current loan.