Understanding Mortgage Points: Should You Pay to Lower Your Rate in New York?

When obtaining a mortgage to buy a home in New York, your lender will typically offer a choice: pay a higher interest rate with minimal upfront cost, or pay "points" upfront to reduce your rate. This tradeoff is one every buyer should evaluate specifically.

What Points Are

One mortgage point equals 1% of the loan amount. On a $500,000 loan, one point costs $5,000. Paying this upfront reduces your interest rate – typically by 0.125% to 0.25% per point, depending on the lender and market conditions.

The Break-Even Calculation

The central question: how long will it take for the monthly savings to recoup the upfront cost?

Example:

Loan: $550,000 – Rate without points: 6.75% – Monthly P&I: $3,567

Rate with 1 point ($5,500): 6.50% – Monthly P&I: $3,477

Monthly savings: $90

Break-even: $5,500 / $90 = 61 months (approximately 5 years)

If you keep the loan for more than 5 years, the point saves you money. If you sell or refinance within 5 years, you don't recoup the upfront cost.

Key Factors

How long do you plan to stay? The most important variable. A meaningful probability of moving or refinancing before break-even makes paying points less attractive.

Opportunity cost: The $5,500 for points isn't available for other uses – additional down payment, reserves, or improvements. For cash-constrained buyers, this opportunity cost matters.

Tax deductibility: Points on a purchase loan for a primary residence are generally deductible in the year of purchase, subject to itemized deduction rules. Confirm with your CPA.

Rate trajectory uncertainty: Points lose value if you refinance when rates fall. Don't let rate expectations drive the decision.

When Points Generally Make Sense

Paying points is most rational for buyers who: are purchasing a long-term primary residence; have the cash available without creating financial strain; and benefit from the tax deductibility.

I connect buyers with lenders who explain this decision clearly and specifically for their loan amount and situation. Call me at (321) 447-4259 or visit movewithricky.com.

Rakesh (Ricky) Khanna | Licensed Real Estate Salesperson
Better Homes and Gardens Real Estate Realty Connect
Call or text: (321) 447-4259 | movewithricky.com