Points Are a Bet on How Long You Stay

Mortgage points are prepaid interest: one point costs 1% of the loan amount and typically buys your rate down by roughly a quarter of a percentage point. Whether that trade pays off is purely a question of time. The break-even is the number of months it takes for the monthly payment savings to equal the cost of the points — and everything after that is pure profit. On a $250,000 loan, one point costs $2,500; if it cuts your payment by $42 a month, you need to stay in the home roughly five years just to break even. If you might move or refinance before that, skip the points and keep the cash. If you plan to stay a decade or more, points are one of the few guaranteed returns left in personal finance.