Discount Points vs. a Bigger Down Payment: Where Your Next $5,000 Works Hardest (2026)
By Jesse Garlick | July 14, 2026
You've saved a little more than you need to close, and your loan officer asks the question that stumps almost everyone: "Do you want to buy down your rate, or just put more down?" Both use the same dollars. They are not the same decision — and the right answer is almost always settled by a single calculation called your break-even.
First, the vocabulary (decoded)
- Discount point
- A fee equal to 1% of your loan amount paid at closing to permanently lower your interest rate. On a $320,000 loan, one point costs $3,200. One point typically shaves the rate by about 0.25%, though it varies by lender and day.
- Par rate
- The interest rate you're offered with zero points — no buy-down, no lender credit. It's the baseline you're comparing everything against.
- Break-even point
- How many months of lower payments it takes to recoup what you paid for the points. Cost of points ÷ monthly savings = break-even in months. This is the whole ballgame.
- PMI (Private Mortgage Insurance)
- A monthly charge you carry when your down payment is under 20%. Crossing that 20% line is what makes a bigger down payment sometimes beat points outright.
What a point actually buys you in 2026
Say you're financing $320,000 at a par rate of 6.75%. Paying one point (about $3,200) to reach 6.50% lowers your principal-and-interest payment by roughly $52/month. Two points to reach 6.25% saves about $105/month. Small monthly numbers — but they run for the life of the loan, which is exactly why the break-even matters.
The break-even test
| What you do with $3,200 | Rate | Monthly P&I change | Break-even |
|---|---|---|---|
| Nothing (par) | 6.75% | — | — |
| Buy 1 point | 6.50% | −$52 | ~62 months |
| Buy 2 points ($6,400) | 6.25% | −$105 | ~61 months |
| Add $3,200 to down payment | 6.75% | −$21 | depends on PMI |
Read the break-even like this: if you'll keep the loan longer than ~62 months (5+ years) without refinancing, the points pay off and then keep paying. If you might sell or refinance before then, you'll never recoup the fee — that $3,200 is better left in your pocket.
When a bigger down payment wins instead
Points lower your rate. A bigger down payment lowers your loan — and can knock out PMI entirely if it pushes you to 20% down. That's the tipping point most calculators miss. If your extra cash is what carries you from 18% to 20% down, removing PMI can save $100–$250 a month — often a far better return than the ~$52 a point would buy. Below that 20% line, though, a slightly bigger down payment barely moves the monthly number, and points usually win.
A simple rule of thumb
None of this requires a spreadsheet wizard — just your break-even and an honest guess at how long you'll keep the loan. Ask your lender to quote you par, one point, and two points side by side, plus the payment with and without PMI. The best use of your next $5,000 will usually jump right off the page.
Keep reading: How Florida's insurance crisis shrinks mortgage approvals · Get pre-qualified free