Should You Buy Mortgage Points? A Complete Guide for Arizona First-Time Homebuyers
If you're researching how to buy your first home in the Phoenix metro area, you've likely encountered the term "mortgage points" or "discount points." Perhaps your online mortgage calculator mentioned them, or you've seen them discussed in homebuying forums. And if you're like most first-time buyers, your first reaction was probably: "Wait, another cost?"
It's a reasonable concern. Home buying comes with numerous expenses—down payment, closing costs, inspections, appraisals—and the idea of paying additional money upfront can feel overwhelming. But here's what many Arizona first-time homebuyers don't realize until it's too late: mortgage points aren't just another expense. They're a strategic financial tool that can help you afford more home, save money long-term, and maximize your purchasing power.
Understanding mortgage points before you start seriously house hunting can give you a significant advantage in Arizona's competitive real estate market. Let's break down exactly what they are, how they work, and when they make sense for your situation.
What Are Mortgage Points?
Mortgage discount points (often simply called "points") are essentially prepaid interest that you pay upfront at closing in exchange for a reduced interest rate over the life of your loan.
Here's the basic math: Each point typically costs 1% of your total loan amount and generally reduces your interest rate by approximately 0.25%. The exact rate reduction can vary by lender and market conditions, but this is the standard benchmark.
A Real Phoenix Metro Example
Let's use realistic numbers for the Arizona market:
Loan amount: $400,000 (common for Phoenix metro area homes)
Original interest rate: 6.5%
Cost of one point: $4,000 (1% of $400,000)
New interest rate after buying one point: 6.25%
At first glance, paying $4,000 to reduce your rate by 0.25% might not seem significant. But when you understand how this impacts your monthly payment, total interest paid, and even your buying power, the value becomes clear.
The Hidden Benefits Most First-Time Buyers Miss
Benefit #1: Increased Buying Power
This is the advantage that surprises most first-time homebuyers: Buying down your interest rate can actually help you qualify for a more expensive home.
When mortgage lenders determine how much home you can afford, they focus primarily on your debt-to-income ratio—specifically, how your monthly mortgage payment compares to your monthly income. A lower interest rate means a lower monthly payment, which means you may qualify for a larger loan amount.
Let's look at a practical Arizona example:
Scenario Without Points:
Maximum approved monthly payment: $2,500
Interest rate: 6.5%
Home price you qualify for: $380,000
Scenario With Points:
Same maximum monthly payment: $2,500
Interest rate after buying points: 6.0%
Home price you qualify for: $400,000
That 0.5% rate reduction just gave you an additional $20,000 in buying power. In the Phoenix metro market, that could be the difference between settling for a home that's "good enough" and getting the home with the extra bedroom, better location, or larger yard that you really want.
For first-time buyers trying to break into competitive Arizona neighborhoods like Tempe, Gilbert, or Scottsdale, this additional buying power can be game-changing.
Benefit #2: Substantial Long-Term Savings
Even if you don't need the extra buying power, reducing your interest rate delivers significant savings over the life of your loan.
Using our $400,000 loan example, let's calculate the real savings of buying one point:
Upfront cost: $4,000
Monthly payment reduction: Approximately $60-70
Annual savings: $720-840
Break-even point: 5-6 years
Total savings over 30 years: $21,600-25,200
After you've owned your home for 5-6 years, the points have completely paid for themselves. Every month after that represents pure savings. According to Freddie Mac's homeownership resources, the average homeowner stays in their home for 13 years—meaning you'd potentially save over $15,000 after the break-even point.
For first-time buyers planning to stay in their Arizona home long-term (which is common as people establish roots in the Phoenix metro area), this creates substantial wealth-building potential.
Benefit #3: Valuable Tax Deductions
Here's a benefit that catches many first-time buyers by surprise: When you purchase your primary residence, you can typically deduct the full cost of mortgage points on your federal tax return in the year you buy the home.
According to IRS guidelines on mortgage points, if you meet certain requirements (which most primary residence purchases do), those points become a valuable deduction.
Using our example:
Points paid: $4,000
Tax bracket: 24% (common for many first-time buyers)
Tax savings: Approximately $960
So your $4,000 investment in points effectively costs you $3,040 after tax benefits—and you still get all the monthly savings and increased buying power we discussed earlier.
This is one of several tax deductions homeowners can claim that make homeownership financially advantageous compared to renting. You can explore your potential overall tax savings using Freddie Mac's tax savings calculator.
The Strategy Most First-Time Buyers Never Hear About
Here's where having an experienced Arizona realtor becomes invaluable: You don't necessarily have to pay for mortgage points with your own money.
During the negotiation process, buyers can request that sellers contribute toward closing costs—including the cost of buying down your interest rate. These are called "seller concessions," and they're a standard part of real estate transactions in Arizona.
How Seller Concessions Work
Let's walk through a real-world scenario:
You make an offer on a Phoenix metro home listed at $425,000
As part of your offer, you request $5,000 in seller concessions toward closing costs
The seller accepts your offer including the concession
At closing, you use that $5,000 to buy down your interest rate
You still receive the tax deduction, even though the seller provided the funds
This strategy is particularly effective in:
Buyer-friendly markets where sellers are motivated
Situations with homes that have been listed longer
Negotiations where the seller can't or won't reduce the purchase price
New construction where builders often offer incentives
An experienced realtor who understands the Phoenix metro market will know when and how to negotiate these concessions effectively, potentially saving you thousands without requiring additional cash from your savings.
When Should Arizona Homebuyers Consider Buying Points?
Mortgage points make the most financial sense in specific situations. Here's how to evaluate whether they're right for you:
Buying Points Makes Sense When:
You plan to stay in the home long-term: The longer you own the home, the more you benefit. If you're planning to stay at least 5-7 years, points typically pay for themselves and then continue delivering savings.
You need additional buying power: If you're close to qualifying for your ideal home but just short of the required monthly payment, buying down your rate could make the difference.
You want to maximize cash flow: Lower monthly payments mean more money available for home maintenance, savings, or other goals.
You can negotiate seller concessions: When the seller contributes toward points, your return on investment is even higher since you're using their money while keeping the tax benefits.
Current interest rates are relatively high: When rates are elevated (as they have been recently), the savings from buying them down become more significant.
Buying Points May Not Make Sense When:
You plan to sell or refinance soon: If you think you'll move or refinance within 2-3 years, you won't reach the break-even point.
You need cash for other priorities: If using that money for a larger down payment (to avoid PMI) or keeping it as an emergency fund is more important, that might be the better choice.
You can't negotiate seller concessions: If you're paying entirely out-of-pocket in a competitive market, the opportunity cost might not be worth it.
Understanding the Break-Even Point
The "break-even point" is the amount of time it takes for your monthly savings to equal the upfront cost of the points. This is the critical calculation for deciding whether points make sense.
Here's the formula: Break-Even Point = Cost of Points ÷ Monthly Payment Savings
Using our earlier example:
Cost of points: $4,000
Monthly savings: $65
Break-even: 62 months (about 5 years)
If you plan to own your Phoenix metro home for longer than the break-even period, buying points is likely a smart financial decision. If you think you might sell or refinance before reaching that point, it may not be worthwhile.
Common Questions Arizona First-Time Buyers Ask About Points
Can I buy more than one point?
Yes, most lenders allow you to buy multiple points. However, there's usually a point of diminishing returns. The first point typically provides the best value, with subsequent points offering smaller rate reductions.
Are points the same as origination fees?
No. Origination fees are what lenders charge to process your loan—they don't reduce your interest rate. Discount points specifically buy down your rate. Make sure you understand which is which when reviewing your loan estimate.
What if I refinance after buying points?
If you refinance, you're essentially paying off your original loan and getting a new one. You won't continue benefiting from the points you bought on the original loan. This is why your timeline is so important when deciding whether to buy points.
Can I roll the cost of points into my loan?
Generally, no. Points are typically paid at closing as part of your upfront costs. However, you might be able to structure the deal where the seller contributes to points, effectively allowing you to benefit without using your own cash reserves.
Taking Your Next Step Toward Arizona Homeownership
If you're a first-time buyer researching how to make homeownership work for your situation, understanding concepts like mortgage points puts you ahead of most buyers. You're asking the right questions and learning the strategies that separate buyers who simply "get a house" from buyers who make smart financial decisions that serve them for decades.
The next step is moving from research to strategy. That means:
Getting pre-approved with lenders who can provide concrete numbers for your situation
Understanding what you can afford in the Phoenix metro neighborhoods you're interested in
Developing a negotiation strategy that maximizes your buying power
Creating a timeline that works for your goals
This is exactly where having an experienced local realtor becomes invaluable.
Let's Create Your Home Buying Strategy
Every buyer's situation is unique. What makes sense for your finances, timeline, and goals might be completely different from what works for someone else—and that's okay. The key is understanding YOUR specific situation and creating a strategy that serves YOUR goals.
As an Arizona realtor who specializes in helping first-time buyers navigate the Phoenix metro market, I focus on more than just finding houses. I help buyers understand:
The complete financial picture of homeownership
How to maximize buying power and negotiate effectively
Which strategies make sense for your specific timeline and goals
How to build long-term wealth through smart real estate decisions
Ready to move from research to action?
Let's schedule a free discovery call where we can discuss:
Your homebuying timeline and goals
Whether strategies like buying points make sense for your situation
What you can afford in your desired Phoenix metro neighborhoods
How to structure offers that get accepted in the current market
Next steps for getting you from renter to homeowner
There's no pressure, no obligation—just an honest conversation about your situation and how I can help you achieve your homeownership goals.
Schedule Your Free Discovery Call
The research phase is important, but at some point, knowledge needs to turn into action. Let's talk about how to make your Arizona homeownership dreams a reality.
Disclaimer: This information is for educational purposes and should not be considered financial or tax advice. Mortgage products, rates, and terms vary by lender and borrower qualifications. Tax implications depend on individual circumstances. Please consult with qualified mortgage professionals and tax advisors for advice specific to your situation.
Last updated: October 2025
