Points that cash buys
2.50
Enter the cash you have set aside, and this page prices two ways to spend it: buying discount points, or adding it to the down payment. The result is not a payment comparison — the down payment is still your money — so the only honest test is which path leaves you richer on the day you sell.
The down payment column is not a cost. That cash becomes equity and comes back at sale; the points column is a closing cost that does not. This is why the page reports net worth at a sale date instead of a monthly payment difference.
| Hold period | Monthly saving invested | Extra equity with the down payment | Net advantage of points | Ahead |
|---|---|---|---|---|
| 1-year hold | $979 | $7,539 | -$6,559 | Extra down |
| 2-year hold | $2,019 | $7,065 | -$5,046 | Extra down |
| 3-year hold | $3,123 | $6,579 | -$3,456 | Extra down |
| 5-year hold | $5,539 | $5,574 | -$35 | Extra down |
| 7-year hold | $8,262 | $4,532 | +$3,730 | Points |
| 10-year hold | $13,010 | $2,928 | +$10,082 | Points |
| 15-year hold | $23,088 | $313 | +$22,775 | Points |
| 30-year hold | $79,749 | $-0 | +$79,749 | Points |
Both paths start from the same base loan: the home price minus your stated down payment. In the points path the loan is unchanged and the cash goes to the lender as a closing cost, which lowers the note rate. In the down payment path the loan shrinks by the cash and the rate stays where it was. Everything after that is arithmetic on two amortization schedules.
On the defaults — $400,000 price, 20% down, 7.40%, $8,000 of cash, 0.25 percentage points of rate cut per point, seven years held, 6% return — the cash buys 2.5 points, the rate falls to 6.775%, and the payment drops from $2,160.22 to $2,080.83. Seven years later the points path has $8,262 of invested savings and owes $4,532 more than the other path, leaving it $3,730 ahead. The two paths cross in month 61.
The usual comparison adds up the monthly saving and calls that the return on points. That credits the points path with money the down payment path never spent — the $8,000 is still in the house as equity and comes back when the house sells. Summing $79.39 over seven years gives $6,669, but $4,532 of it is cancelled by the extra debt the points path carries, so the honest gap is $2,137 before any return on the saved cash.
A comparison that stops at the monthly payment therefore overstates points by roughly three to one on these defaults. The overstatement is not a rounding issue: it scales with the cash amount, because the whole of that cash is treated as free when in fact only part of it is.
Two assumptions move the answer far more than the number of years on the slider. At 0.25 percentage points of rate cut per point the defaults cross in month 61 and finish $3,730 ahead over seven years. At 0.125 the same cash cuts the rate half as far, the payment falls only $12.42 a month, and the points path is $4,669 behind after seven years — it does not cross until month 174, past the fifteenth year.
That spread is why the rate cut per point is an input here rather than a constant. The CFPB states that the reduction a point buys is set by the lender and the market, so a calculator that hard-codes 0.25 produces one confident answer to a question the borrower has not actually asked their lender.
The practical move is to ask for the same loan priced at two or three point levels and read the rate off each row. That grid, not any national rule of thumb, is the input this page needs.
Three things sit outside the arithmetic here, and any of them can change the decision.
Points win when the lender's grid is generous relative to the note rate and you keep the loan past the crossover month. The down payment wins when the grid is thin, when you expect to sell or refinance before the crossover, and whenever the cash is what removes mortgage insurance.
The crossover month is the number worth carrying to the lender, because it is the one input they control and you do not.
No. A larger down payment reduces the loan and is returned to you as equity when the house sells. Points are a closing cost paid to the lender; they lower the rate, and they are gone whether or not you sell.
Not by itself. One point costs 1% of the loan and, at a quarter-point of rate cut per point, saves about 0.25% of the balance a year — roughly four years of interest to repay the fee, before accounting for the fact that the fee is gone while the down payment is not. The crossover month is where those two effects meet.
Because the rate cut applies to every dollar of interest on the whole balance, while the cash is a fixed amount. At 0.25 percentage points per point the defaults cross in month 61; at 0.125 they cross in month 174. Ask the lender for the actual grid at two or three point levels before treating either number as yours.
The return you would really earn on cash you do not spend, after tax. At 0% the defaults finish $2,137 ahead; at 6%, $3,730. A rate you would not actually invest at flatters the points path.
The points lose. The fee is already paid and the lower rate stops at the refinance, while the down payment path keeps its equity through a refinance. A short expected holding period is the strongest argument against buying points.
Points vs. More Down Payment: Where the Same Cash Goes Further lists each external figure it uses once, with the publisher that issues it and the date it was retrieved. The calculator takes these as its defaults, so any of them can be replaced with a number of your own; a figure that is not in the list is one this page did not take from anywhere.
| Figure | Value | Published by | Retrieved |
|---|---|---|---|
| 30-year fixed mortgage national average | 7.40% | Freddie Mac Primary Mortgage Market Survey (PMMS) | 2026-10-19 |
Values are the ones this page is built with, not a live feed. Where a figure is revised on a schedule, the retrieval date above is when it was read, and the next scheduled refresh is shown at the top of the page.
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Cluster us/mortgage · Unit us-mortgage-points-vs-down-payment · Engine amortizing-loan / points-vs-down · Method: Net advantage of points = the monthly payment difference compounded monthly at the stated return, minus the gap between the two loan balances at the sale date. Points bought = cash divided by the base loan times 100; the rate after points = the note rate minus points times the rate reduction per point. The sale price cancels because both paths sell the same house on the same day, which is why the comparison reduces to two amortization schedules.