Mortgage Rates and Points: When to Buy Down Your Rate

Your lender offers you two options: 6.5% with no points, or 6.0% if you pay $13,500 upfront. Which should you choose?

In Seattle's expensive market, where a typical loan is $650,000-750,000, a 0.5% rate difference means $200-250 per month. But paying points upfront costs thousands. And with rates dropping from 7%+ in 2023 to around 6.3% in October 2025—and expected to fall further to 6.0% or below by year-end—many buyers are refinancing within 2-3 years, losing the benefit of any points paid.

Understanding when points make sense in today's declining rate environment can save you tens of thousands of dollars.

What You'll Learn

How mortgage rates are determined and what affects your rate
What discount points are and how they work
Break-even analysis: when points pay off in Seattle's market
Rate lock strategies and timing
Real examples with Seattle home prices

This article is for you if you're comparing loan offers with different rates and points, or trying to decide whether to buy down your rate.

Understanding Mortgage Rates
What Are Discount Points?
Break-Even Analysis
Negative Points (Lender Credits)
Rate Lock Strategies
Comparing Loan Offers
Real Decision Scenarios
Tax Implications
Summary: Key Takeaways
Next Steps
Additional Resources

Understanding Mortgage Rates

What Determines Your Rate

Factors you can't control:

Federal Reserve policy
Bond market (10-year Treasury)
Economic conditions
Inflation

Factors you can control:

Credit score (biggest impact)
Down payment amount
Loan type (conventional, FHA, VA, jumbo)
Loan term (15-year vs 30-year)
Points paid
Rate lock period

Credit Score Impact

Rate tiers (October 2025, conventional loan, 20% down):

740+: 6.0-6.3% (best rates)
720-739: 6.3-6.5%
700-719: 6.5-6.7%
680-699: 6.7-7.0%
660-679: 7.0-7.3%
640-659: 7.3-7.6%
620-639: 7.6-8.0%

Every 20-point drop costs roughly 0.2-0.3% in rate.

Seattle example ($700,000 loan, October 2025):

740 score at 6.0%: $4,195/month
680 score at 6.7%: $4,520/month
Difference: $325/month = $117,000 over 30 years

Down Payment Impact

Rate adjustments by down payment:

20%+ down: Best rates
15% down: +0.125-0.25%
10% down: +0.25-0.375%
5% down: +0.375-0.5%
3% down: +0.5-0.625%

Lower down payment = higher risk = higher rate.

Seattle example ($825,000 home, October 2025):

20% down ($165,000): 6.3% rate
10% down ($82,500): 6.6% rate
Rate difference: 0.3%
Payment difference: $135/month

Loan Type Impact

Typical rate hierarchy (October 2025):

VA loans: 5.75-6.25% (lowest)
Conventional: 6.0-6.8%
FHA: 5.75-6.25% (low rate but permanent MIP)
Jumbo: 6.3-7.2% (highest)

Seattle reality: Most Seattle/Eastside homes require jumbo loans, which have higher rates despite excellent credit.

What Are Discount Points?

The Basics

One point = 1% of loan amount

Example ($700,000 loan):

1 point = $7,000
0.5 points = $3,500
2 points = $14,000

What you get:

Each point typically reduces rate by 0.25%
Sometimes 0.125% or 0.375% depending on market
Permanent rate reduction for life of loan

How Points Work

No points option:

Rate: 6.5%
Upfront cost: $0
Monthly payment: $4,430

1 point option:

Rate: 6.25%
Upfront cost: $7,000
Monthly payment: $4,310
Savings: $120/month

2 points option:

Rate: 6.0%
Upfront cost: $14,000
Monthly payment: $4,195
Savings: $235/month vs no points

Points vs Origination Fees

Discount points:

Optional
Buy down interest rate
Permanent rate reduction
Tax deductible (if you itemize)

Origination fees:

Lender charges for processing
Don't reduce rate
Typically 0.5-1% of loan
Not the same as points

When comparing lenders, separate points from fees. One lender might have "no points" but high fees. Another might have low fees but require points for competitive rate.

Break-Even Analysis

The Formula

Break-even months = Points cost ÷ Monthly savings

Example ($700,000 loan):

1 point cost: $7,000
Monthly savings: $115
Break-even: $7,000 ÷ $115 = 61 months (5.1 years)

If you stay longer than 5.1 years and don't refinance, points save money.

Important in 2025: With rates falling from 7.8% (2023) to 6.3% (October 2025), many buyers who locked in 6.5-7% rates in 2023-2024 are refinancing now. If you refinance, you lose the benefit of points paid on your original loan. This makes the break-even calculation even more critical.

Seattle Market Examples

Example 1: Median home ($825,000, 20% down, $660,000 loan)

No points:

Rate: 6.75%
Payment: $4,280/month
Upfront: $0

1 point:

Rate: 6.5%
Payment: $4,170/month
Upfront: $6,600
Monthly savings: $110
Break-even: 60 months (5 years)

2 points:

Rate: 6.25%
Payment: $4,065/month
Upfront: $13,200
Monthly savings: $215
Break-even: 61 months (5.1 years)

Analysis: If staying 7+ years, 1-2 points make sense. If staying 3-5 years, no points better.

Example 2: Expensive home ($1,200,000, 20% down, $960,000 loan)

No points:

Rate: 7.0% (jumbo)
Payment: $6,385/month
Upfront: $0

1 point:

Rate: 6.75%
Payment: $6,225/month
Upfront: $9,600
Monthly savings: $160
Break-even: 60 months (5 years)

2 points:

Rate: 6.5%
Payment: $6,070/month
Upfront: $19,200
Monthly savings: $315
Break-even: 61 months (5.1 years)

Analysis: Larger loan = larger monthly savings = similar break-even. Points make sense if staying long-term.

Example 3: Starter home ($600,000, 10% down, $540,000 loan)

No points:

Rate: 7.0%
Payment: $3,590/month
Upfront: $0

1 point:

Rate: 6.75%
Payment: $3,500/month
Upfront: $5,400
Monthly savings: $90
Break-even: 60 months (5 years)

Analysis: Smaller loan = smaller monthly savings = same break-even. First-time buyers often move within 5-7 years, so points are marginal.

When Points Make Sense

Pay points if:

Staying 7+ years (well past break-even)
Have extra cash beyond down payment and reserves
Want lower monthly payment
In high tax bracket (points are deductible)
Rates have bottomed out (unlikely to drop further and refinance)
Stable financial situation (no major changes expected)

Skip points if:

Staying under 5 years
Cash is tight (need for down payment/reserves)
Rates likely to drop further (common in 2025 as Fed continues cuts)
Expect major income changes (will refinance for better terms)
Job or life uncertainty (may need to move or refinance)
Prefer flexibility over savings

2025 Reality: Most financial advisors recommend skipping points in the current environment. Rates dropped from 7.8% (October 2023) to 6.8% (October 2024) to 6.3% (October 2025), with predictions of 6.0% or lower by year-end 2025 and potentially 5.5% in 2026. Many buyers who paid points in 2023-2024 are now refinancing and losing that investment.

Remember: If you refinance, you lose the benefit of points paid. Break-even assumes you keep the loan.

Seattle-Specific Considerations

Tech workers:

Job changes common (average 3-4 years)
May relocate for new opportunity
RSU volatility affects finances
Often refinance when RSUs vest or after promotion
May refinance to remove PMI after appreciation
Recommendation: Skip points unless very confident staying 7+ years without refinancing

Families with kids:

More likely to stay long-term (school stability)
7-10 years typical
Recommendation: 1-2 points often make sense

Retirees:

Staying long-term (10+ years)
Fixed income benefits from lower payment
Recommendation: Points usually make sense

Investors:

May sell when market peaks
Shorter holding period
Recommendation: Skip points

Negative Points (Lender Credits)

How They Work

Instead of paying points to lower rate, you accept higher rate to get credit toward closing costs.

Example ($700,000 loan):

Standard rate:

Rate: 6.75%
Payment: $4,540/month
Lender credit: $0

Higher rate with credit:

Rate: 7.0%
Payment: $4,655/month
Lender credit: $7,000 (1 point)
Extra cost: $115/month

When Lender Credits Make Sense

Use lender credits if:

Cash is very tight
Need help with closing costs
Planning to refinance within 2-3 years (rates expected to drop)
Expect income increase soon (will refinance for better terms)
Want to test the home/neighborhood before committing long-term

Example scenario:

Have exactly 10% down payment
Closing costs are $18,000
Only have $20,000 beyond down payment
Take lender credit to cover $7,000 of closing costs
Accept higher rate temporarily
Plan to refinance in 2-3 years when rates drop or income increases

Seattle reality: With high home prices, closing costs are $15,000-25,000. Lender credits can help buyers who are cash-constrained but have good income and expect to refinance.

Rate Lock Strategies

What Is a Rate Lock?

Agreement with lender to hold specific rate for set period (usually 30-60 days).

Standard lock periods:

30 days: Standard rate
45 days: +0.125% or small fee
60 days: +0.25% or larger fee
90 days: +0.375-0.5% or significant fee

When to Lock

Lock immediately if:

Rates are rising
You found your home
Closing is 30-45 days away
You're risk-averse

Float (don't lock) if:

Rates are falling
You're still house hunting
Closing is 60+ days away
You're willing to gamble

Seattle typical timeline:

Offer to closing: 30-45 days
Lock at offer acceptance: Standard approach
Lock period: 45 days (gives buffer for delays)

Float-Down Options

Some lenders offer "float-down" provisions.

How it works:

Lock rate at 6.75%
If rates drop to 6.5% before closing, you get 6.5%
If rates rise to 7.0%, you keep 6.75%
Usually costs 0.125-0.25% or $500-1,000 fee

Worth it? Depends on rate volatility and your risk tolerance. In stable rate environment, not worth the cost.

Rate Lock Extensions

If closing delays, you may need to extend lock.

Extension costs:

15 days: 0.125% or $500-1,000
30 days: 0.25% or $1,000-2,000

How to avoid:

Lock for 45-60 days initially
Stay on top of closing timeline
Communicate with lender about delays

Pro Tip: If rates have dropped since you locked, let lock expire and relock at lower rate. If rates have risen, pay for extension.

Comparing Loan Offers

The Right Way to Compare

Don't just compare rates. Compare total cost.

Loan Estimate comparison:

Interest rate
Points/credits
Lender fees
APR (includes fees)
Monthly payment
Total interest over 30 years

Example: Two offers for $700,000 loan

Lender A:

Rate: 6.5%
Points: 1 ($7,000)
Lender fees: $2,000
Monthly payment: $4,425
Total upfront: $9,000

Lender B:

Rate: 6.625%
Points: 0
Lender fees: $3,500
Monthly payment: $4,480
Total upfront: $3,500

Analysis:

Lender A: Lower rate, higher upfront ($5,500 more)
Monthly savings: $55/month
Break-even: $5,500 ÷ $55 = 100 months (8.3 years)
If staying 10+ years: Lender A better
If staying 5-7 years: Lender B better

APR vs Interest Rate

Interest rate: What you pay on the loan balance

APR (Annual Percentage Rate): Includes interest rate plus fees, expressed as yearly rate

Example:

Interest rate: 6.5%
Points: $7,000
Fees: $2,000
APR: 6.65%

Higher APR = higher total cost.

Use APR to compare loans with different fee structures.

Pro Tip: If two loans have same rate but different APRs, the lower APR has lower fees.

Real Decision Scenarios

Scenario 1: First-time buyer, uncertain timeline

Situation:

Buying: $750,000 home
Loan: $675,000 (10% down)
Plan: Starter home, might upgrade in 5-7 years
Cash: Tight after down payment
May refinance: To remove PMI or if income increases

Options:

6.75% with 0 points: $4,380/month
6.5% with 1 point ($6,750): $4,265/month
Savings: $115/month, break-even 59 months

Recommendation: Skip points

Uncertain timeline (might move in 5 years)
May refinance to remove PMI after reaching 20% equity
Cash is tight (need reserves for repairs/emergencies)
Break-even is borderline
If staying long-term, can pay points when refinancing

Scenario 2: Family, long-term home

Situation:

Buying: $1,000,000 home
Loan: $800,000 (20% down)
Plan: Forever home, kids in elementary school
Cash: Comfortable reserves

Options:

6.75% with 0 points: $5,190/month
6.25% with 2 points ($16,000): $4,925/month
Savings: $265/month, break-even 60 months

Recommendation: Pay 2 points

Staying 10+ years (kids through high school)
Have cash reserves
$265/month savings = $95,400 over 30 years
Well past break-even

Scenario 3: Tech worker, high income, volatile job

Situation:

Buying: $900,000 home
Loan: $720,000 (20% down)
Plan: Uncertain, tech layoffs possible
Cash: Good savings
Expects: RSU vesting, possible promotion, may refinance

Options:

6.75% with 0 points: $4,670/month
6.5% with 1 point ($7,200): $4,550/month
Savings: $120/month, break-even 60 months

Recommendation: Skip points

Job uncertainty (may need to relocate)
Likely to refinance when RSUs vest or after promotion
May refinance to remove PMI after home appreciation
If rates drop 0.5%+, refinancing makes sense
Keep cash for flexibility
Can pay points later if staying long-term without refinancing

Scenario 4: Retiree, fixed income

Situation:

Buying: $700,000 condo
Loan: $490,000 (30% down)
Plan: Aging in place, 15+ years
Cash: Substantial savings
Unlikely to refinance: Fixed income, no major life changes expected

Options:

6.75% with 0 points: $3,180/month
6.25% with 2 points ($9,800): $3,020/month
Savings: $160/month, break-even 61 months

Recommendation: Pay 2 points

Staying long-term (15+ years)
Fixed income benefits from lower payment
Unlikely to refinance (stable situation, refinancing costs not worth it)
$160/month = $57,600 over 30 years
Have cash reserves
Well past break-even even if rates drop slightly

Tax Implications

Points Are Tax Deductible

Requirements:

Must itemize deductions
Points must be for primary residence
Must be paid at closing (not financed)
Must be reasonable (not excessive)

Deduction timing:

Purchase: Deduct in year paid
Refinance: Deduct over life of loan

Example:

Pay 2 points: $14,000
Tax bracket: 24%
Tax savings: $3,360 (year 1)
Effective cost: $10,640

Seattle consideration: With no state income tax, federal deduction is only tax benefit. Standard deduction is $15,000 (single) or $30,000 (married) in 2025. Many buyers don't itemize.

Pro Tip: Calculate whether you'll itemize. If mortgage interest + property taxes + points < standard deduction, you won't benefit from deduction.

Summary: Key Takeaways

One point = 1% of loan amount and typically reduces rate by 0.25%
Break-even is typically 5 years in Seattle market
Pay points if staying 7+ years and have cash reserves
Skip points if staying under 5 years or cash is tight
Lock rate for 45 days at offer acceptance (gives buffer for delays)
Compare total cost, not just rate - look at APR and upfront costs
Points are tax deductible but only if you itemize
Lender credits can help with closing costs if cash is tight

Next Steps

Determine your timeline - how long will you stay in the home?
Calculate break-even for any loan offers with points
Check your cash position - do you have reserves after down payment?
Get multiple quotes - compare rates, points, and fees from 3+ lenders
Review Loan Estimates - compare APR, not just interest rate
Decide on points based on timeline and cash position
Read our Choosing a Lender article - how to compare lenders effectively

Additional Resources

Mortgage Calculator with Points: zillow.com/mortgage-calculator
Break-Even Calculator: bankrate.com/mortgages/mortgage-points-calculator
Current Rates: mortgagenewsdaily.com (daily rate updates)
APR Calculator: consumerfinance.gov/owning-a-home
Tax Deduction Info: irs.gov/publications/p936 (mortgage interest deduction)

This article provides general information about mortgage rates and points and should not be considered financial or tax advice. Rates and point costs vary by lender and change daily. Consult with multiple lenders and a tax advisor for guidance specific to your situation.