🏦 Refinance StrategiesUpdated: September 2, 2026
Discount Points vs. Lender Credits: Mortgage Point ROI Calculations & Tax Deductibility
Reviewed by Nevada Mortgage & Real Estate Finance Editorial Board
Deciding whether to buy down your interest rate: discount point pricing, calculating monthly return on investment (ROI), and IRS 1098 amortization rules for refinanced points.
One discount point equals 1.00% of the loan amount paid upfront at closing to permanently reduce the mortgage interest rate by approximately 0.25%.
1. Quantitative Analysis of Buying Points
Point ROI Calculation Example
On a $500,000 loan, 1 point costs $5,000. If buying the rate down from 6.25% ($3,078/mo) to 6.00% ($2,997/mo) saves $81 monthly: $$\text{Recoupment Time} = \frac{\$5,000}{\$81} = 61.7 \text{ Months (5.1 Years)}$$ If you keep the mortgage longer than 5.1 years, buying the point generates pure savings.
- IRS Tax Treatment on Refinancing: Unlike purchase loans where points are fully deductible in year one, points paid on a refinance must be deducted ratably over the life of the loan (e.g. 1/30th per year on a 30-year term).
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Nevada Mortgage & Real Estate Finance Editorial Board
Our advisory board includes licensed Nevada mortgage professionals, real estate finance analysts, and title escrow specialists evaluating conforming, jumbo, and government loan guidelines.
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