The Quick Version
- Discount points are prepaid interest: each one costs 1% of the loan, or $5,200 on a $520,000 loan.
- In the worked example below, a point that trims 0.25% from the rate pays for itself in four to five years.
- A point that buys only 0.125% takes approximately eight to ten years to recover.
- Points on a second home are deducted over the life of the loan, never all at once.
- A seller can pay them, within Fannie Mae’s contribution limits.
- Last updated September 2026.
A discount point costs 1% of your mortgage and buys a lower interest rate for the life of the loan. On a $520,000 loan that is $5,200 at closing, and it pays you back only if you keep the loan past the breakeven month, which arrives in roughly four to five years in the example below.
The calculation matters more with mortgage rates at current levels. Freddie Mac’s weekly survey put the 30-year fixed rate at 6.76% as of September 10, 2026, against 6.35% a year earlier. In Fannin County, the single-family median sale price was $650,000 across the first seven months of 2026, so a buyer putting 20% down borrows about $520,000.
This is general information rather than lending or tax advice. Quotes move daily, so let your loan officer and CPA review your own numbers before you pay for a lower rate.
What does a discount point cost?
One point equals 1% of the loan amount, not the purchase price. The IRS describes points as costs “which are a form of prepaid interest,” and says each point paid lowers the rate on your monthly payments. You prepay part of the interest in exchange for a smaller payment every month afterward.
| Points bought | Cost on a $520,000 loan |
|---|---|
| Half a point | $2,600 |
| One point | $5,200 |
| Two points | $10,400 |
| Three points | $15,600 |
How much rate each point buys is the lender’s number, not a fixed conversion. Ask every lender to price the same loan at zero, one and two points on the same day, so you are comparing equivalent trades rather than rate sheets from different mornings.
When do discount points pay for themselves?
When the accumulated monthly savings equal the upfront cost. Take a hypothetical quote on a $520,000, 30-year fixed loan: 6.75% with no points, 6.50% for one point, or 6.25% for two. Only principal and interest differ among the three quotes.
| Quote | Upfront cost | Monthly principal and interest | Monthly savings | Simple breakeven |
|---|---|---|---|---|
| 6.75%, no points | $0 | $3,372.71 | None | None |
| 6.50%, one point | $5,200 | $3,286.75 | $85.96 | 61 months |
| 6.25%, two points | $10,400 | $3,201.73 | $170.98 | 61 months |
Dividing cost by savings actually understates the value of the trade. The lower rate also pays principal down faster, and once that extra equity is counted, both quotes cross even in month 48. Keep the loan three years and the one-point trade is $1,285 behind; keep it ten and it finishes $7,844 ahead.
What if a point buys only an eighth of a percent?
Then the wait for a payoff roughly doubles. If a lender charges a full point, $5,200, to move the same loan from 6.75% to 6.625%, the payment drops only $43.09 a month. Simple breakeven stretches to 121 months, and even counting the faster principal paydown it takes 96.
After seven years that buyer is still $622 behind, which is why, for retirees buying in the North Georgia mountains, the ownership horizon is the whole question. A 30-year loan ends early the day you sell, pay it off or refinance, and any points not yet earned back are simply gone.
Interest rates themselves add a second, separate risk. If they fall far enough that refinancing makes sense in year three, the points on the original loan never break even.
Can the seller pay your discount points?
Yes, and Fannin County’s current market gives buyers genuine negotiating room. Single-family homes sold through July 2026 closed at 95.2% of list price after 85 days on market, and the county carried 10.9 months of inventory in July, per the Georgia Association of Realtors.
Fannie Mae limits how much a seller can contribute toward financing. For a principal residence or second home, its Selling Guide allows 9% at 75% financing or less, 6% from 75.01% to 90%, and 3% above 90%, measured against the lower of price or appraised value. An investment property qualifies for only 2%.
At 80% financing on a $650,000 cabin, that ceiling is $39,000. The credit also cannot exceed your actual closing costs, and a seller-funded rate buydown counts toward the same limit.
How are points on a North Georgia mountains cabin taxed?
Slowly, and more slowly than most buyers expect. IRS Publication 936 says you “can’t fully deduct in the year paid points you pay on loans secured by your second home.” You deduct them over the life of the loan instead, so one $5,200 point on a 30-year cabin loan yields $173.33 in a full year, and only if you itemize.
A primary residence can do considerably better. If the loan meets the publication’s tests, including that it buys or builds the home you live in and the points appear on the settlement statement as a percentage of principal, you can choose to deduct them in the year paid. Points on a refinance generally spread over the loan.
Seller-paid points follow the same deduction rules. The buyer treats them as paid by the buyer and reduces the home’s basis by that amount, which slightly raises the gain when the home eventually sells.
Is there a limit on how many points a lender can charge?
For a qualified mortgage, federal regulations set one. Under the Consumer Financial Protection Bureau’s 2026 threshold adjustments, a loan of $137,958 or more is not a qualified mortgage if its total points and fees exceed 3% of the loan amount. On a $520,000 loan, that line sits at $15,600.
A quote carrying three points is already at that figure before any other lender charge, so read the Loan Estimate closely before you lock.
Is a temporary buydown the better ask?
Sometimes, particularly when the seller is financing it. A temporary buydown reduces the rate during the first years of the loan only. Fannie Mae’s buydown rules allow them on principal residences and second homes, cap the reduction at 3%, limit increases to 1% a year and hold the buydown period to three years or less.
The catch is underwriting. The lender must qualify you at the full note rate, not the bought-down rate, so a buydown eases early cash flow without raising what you can borrow. Permanent points keep working after year three, while a temporary buydown simply expires.
How should you decide on points before making an offer?
I’m Thomas Echea, a Luxury Real Estate Advisor with E+E Group at Compass, and I own homes in Blue Ridge and Fort Lauderdale. Start with the number of years you realistically expect to keep the loan, then work backward from that estimate. If the breakeven month falls well inside that window, points are worth pricing.
Decide before submitting an offer, not at the closing table. A request for a seller credit toward points belongs in the contract, and with close to 11 months of inventory, it is a reasonable one. For the rest of the financing picture, see second-home mortgage rates and down payments, how seller concessions work in Georgia, and the full guide to closing costs in Georgia.
Frequently asked questions
How much does one discount point cost?
One discount point costs 1% of the loan amount, not the purchase price. On a $520,000 mortgage, one point is $5,200 and two points are $10,400, paid at closing in exchange for a lower interest rate.
How do you calculate the breakeven on discount points?
Divide the cost of the points by the monthly payment savings. A $5,200 point that saves $85.96 a month breaks even in about 61 months. Counting the faster principal paydown at the lower rate, the same trade crosses even in month 48.
Are discount points on a second home tax deductible?
Yes, but not all at once. IRS Publication 936 requires points on a loan secured by a second home to be deducted over the life of the loan. One $5,200 point on a 30-year loan works out to $173.33 per full year, and only for taxpayers who itemize.
Can the seller pay for discount points?
Yes. On a Fannie Mae loan for a principal residence or second home, seller contributions are capped at 9%, 6% or 3% of the lower of price or appraised value, depending on loan-to-value. The IRS treats seller-paid points as paid by the buyer, who reduces the home’s basis by that amount.
Is a temporary buydown the same as discount points?
No. Discount points lower the rate for the life of the loan. A temporary buydown lowers it for no more than three years under Fannie Mae rules, and the lender must still qualify the borrower at the full note rate.
Is there a limit on points for a qualified mortgage?
Yes. For 2026, a loan of $137,958 or more is not a qualified mortgage if its total points and fees exceed 3% of the loan amount, under the Consumer Financial Protection Bureau’s annual threshold adjustment.
