How much does 1 discount point reduce my mortgage rate?

As an industry standard, 1 discount point (costing 1% of the loan amount) reduces your interest rate by 0.25% (25 basis points). However, depending on lender rate sheets and market volatility, rate reductions can range between 0.125% and 0.375%.

Are mortgage discount points tax deductible in 2026?

Yes, under IRC §461(g) and IRS Publication 936, discount points are deductible as prepaid interest if you itemize deductions on Schedule A. On a primary home purchase meeting the IRS 9-point test, they are fully deductible in the year paid. On a refinance, they must be amortized ratably over the life of the loan.

What happens to unamortized refinance points if I refinance again or sell?

If you are deducting points ratably on a refinance and subsequently refinance with a different lender or pay off the mortgage upon selling the house, you can deduct all remaining unamortized points in full on that tax year's return.

When is buying mortgage discount points NOT worth it?

Buying points is not worth it if you plan to move or refinance before your break-even month (typically 5 years), if mortgage rates are high and likely to decline, or if you are paying monthly Private Mortgage Insurance (PMI) that could be eliminated by using the cash for a larger down payment.

Discount Points Calculator (Mortgage Points Breakeven)

Calculate if buying discount mortgage points is worth the upfront cost, factoring in monthly payment reduction, breakeven months, and IRS tax deductibility.

Status: Algorithmic Audit (CPA Review Pending)

Governing Law: IRC §461(g) & CFPB Regulation Z (12 CFR § 1026.36)

Tax Standards: IRS Pub 936 (9-Point Deductibility Criteria)

Data Privacy: 100% Client-Side In-Browser Execution

Calculated Mortgage Points Breakeven & Cash Flow

✓ Clear Financial Win (Profitable Beyond Month 60)

Buying 1 point ($4,000 on a $400k loan) generates a net profit of +$1,620.44 over a 7-year homeownership horizon.

Monthly principal and interest drops from $2,661.21 to $2,594.30 (saving $66.91/month). The upfront $4,000 cost is fully recouped in 59.8 months (5.0 years).

Upfront Cost of Points

$4,000.00

1.0% of $400,000 principal

Monthly Payment Savings

$66.91 / mo

7.00% reduced to 6.75%

Simple Break-Even Period

59.8 Months

Exactly 4.98 years

30-Yr Lifetime Net Savings

$20,087.60

Net of upfront points fee

Mortgage Points in 2026: Statutory Rules & Tax Deductibility

Under the Internal Revenue Code, mortgage discount points represent prepaid interest. Whether you can deduct points upfront or must amortize them over 30 years is strictly governed by IRC §461(g):

Mortgage Transaction Type	IRS Tax Treatment	Statutory Code	Deductibility Horizon
Primary Home Purchase	100% Deductible in Year Paid	IRC §461(g)(2)	Upfront on Schedule A
Mortgage Refinance	Amortized Ratably Over Loan Life	IRC §461(g)(1)	1/360th per month (30 Years)
Cash-Out Refinance for Home Improvement	Allocable Portion Deductible in Year Paid	Treas. Reg. §1.461-7	Deductible based on % used for improvements
Second Home / Vacation Property	Amortized Ratably Over Loan Life	IRC §461(g)(1)	Ratable monthly deduction

Standard Deduction Threshold Warning: For Tax Year 2026, the federal standard deductions are $16,100 (Single) and $32,200 (Married Filing Jointly). If your total itemized deductions do not exceed these thresholds, points provide $0 in tax relief.

Unamortized Points Write-Off: If you are ratably amortizing points on a refinanced loan and you refinance again or sell the home, you can write off all remaining unamortized points in full in that year's tax filing.

Refinance Threat: If mortgage interest rates fall in 2 to 3 years and you refinance, any points cost not yet recouped through monthly payment savings is permanently forfeited.

Mortgage Points Milestone Crossover Table ($400,000 Loan)

Holding Horizon	Cumulative Savings	Upfront Fee	Net Position	Outcome Status
1 Year (12 mos)	$802.92	$4,000.00	-$3,197.08	DEFICIT
3 Years (36 mos)	$2,408.76	$4,000.00	-$1,591.24	DEFICIT
5 Years (60 mos)	$4,014.60	$4,000.00	+$14.60	BREAKEVEN
7 Years (84 mos) 📍	$5,620.44	$4,000.00	+$1,620.44	PROFIT
10 Years (120 mos)	$8,029.20	$4,000.00	+$4,029.20	PROFIT
30 Years (360 mos)	$24,087.60	$4,000.00	+$20,087.60	MAX PROFIT

3 Tested 2026 Mortgage Scenarios

1. Standard 30-Yr Purchase ($400k)

1 Point ($4,000) buys down rate from 7.00% to 6.75%, saving $66.91/month. Break-even occurs at Month 59.8 (5.0 years).

Outcome: +$1,620 profit at Year 7

2. 2-Point Buydown ($500k Loan)

2 Points ($10,000) buys down rate from 7.25% to 6.75%, saving $167.36/month. Tax deduction on primary purchase reduces net cost to $7,100.

Outcome: +$10,083 profit at Year 10

3. Refinance Risk ($350k, 3-Yr Move)

Paying $3,500 in points with a 3-year holding horizon. Only $2,070 is recouped before refinancing, losing $1,430.

Outcome: -$1,430 net loss (Warning!)

In-Depth Mortgage Guides & Decision Frameworks

Breakeven Analysis

Are Mortgage Discount Points Worth It?

How to calculate your exact break-even timeline, opportunity cost, and the dangers of the early refinance trap.

Read Guide →

Tax Regulations

Are Mortgage Points Tax Deductible?

IRC §461(g) guidelines, the IRS 9-point criteria for primary homes, and Schedule A standard deduction rules.

Read Guide →

Refinance Strategy

Purchase vs. Refinance Points

Why the IRS requires 30-year ratable amortization on refinances and how to write off unamortized points.

Read Guide →

Equity vs Rate

Points vs. Bigger Down Payment

Comparing interest rate reductions against putting cash into down payment to eliminate monthly PMI.

Read Guide →

Regulatory Scope, Methodology & Version History

Supported Mortgages: Conforming conventional 15-year and 30-year fixed rate mortgages, FHA, VA, USDA, and jumbo loans across all 50 states. Exclusions: Commercial loans, reverse mortgages, and construction draw loans.

Developer & Quantitative Modeling: Maintained by Jawad Ahmed and the Quantitative Modeling Team at Jiatrix Solutions. Automated unit test suite verifies calculations against CFPB Regulation Z and IRS Publication 936 standards.

Update History: v2026.2 (October 2026: added IRC §461(g) tax-adjusted breakeven solver, opportunity cost model, and refinance horizon warning); v2026.1 (January 2026: 2026 FHFA baseline conforming limit update).

Statutory Sources:{' '} IRS Publication 936 ·{' '} Internal Revenue Code § 461(g) ·{' '} CFPB Regulation Z

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