When navigating the mortgage process, understanding mortgage points can mean the difference between thousands of dollars in savings or unnecessary upfront costs. These fees appear on your Loan Estimate and Closing Disclosure, yet many homebuyers remain confused about what they represent, how they differ from origination fees, and whether they qualify for tax deductions. This comprehensive guide explains mortgage points and their implications for your 2026 home purchase or refinance.
Defining Mortgage Points
Mortgage points, also called discount points, represent prepaid interest you pay upfront to your lender in exchange for a lower interest rate throughout your loan’s life. According to Bankrate, one point equals 1% of your total loan amount. For example, on a $300,000 mortgage, one point costs $3,000.
The Federal Housing Finance Agency defines discount points as a form of prepaid interest where each point typically reduces your interest rate by approximately 0.25 percentage points. This practice is commonly referred to as “buying down” your interest rate. If your quoted rate is 7.0%, purchasing one point might lower it to 6.75%, reducing your monthly payment and total interest paid over the loan’s duration.
The financial benefit depends on your break-even point—how long you must keep the mortgage to recover the upfront cost through monthly savings. First National Bank illustrates this calculation: on a $300,000 loan where buying one point ($3,000) reduces your rate from 5.75% to 5.5%, your monthly payment decreases by $47. Dividing $3,000 by $47 reveals a break-even period of approximately 64 months—just over five years (First National Bank, 2024).
Are Points and Origination Fees the Same?
This common confusion stems from both being expressed as percentages of your loan amount, but they serve fundamentally different purposes.
Discount Points: These are optional fees you choose to pay for a lower interest rate. We emphasize that discount points are entirely elective—you control whether to pay them based on your financial situation and long-term homeownership plans.
Origination Fees (Origination Points): First National Bank explains that origination fees are mandatory charges covering the lender’s administrative costs for processing, underwriting, and funding your loan. These typically range from 0.5% to 1% of the loan amount but don’t reduce your interest rate.
Sammamish Mortgage clarifies a critical distinction: “Discount points are always used to buy down interest rates, while origination fees sometimes are fees the lender charges for the loan or sometimes just another name for buying down the interest rate.” However, most lenders now clearly separate these charges on loan documents.
Rocket Mortgage adds important context: origination fees are often negotiable, and some lenders offer “no origination fee” loans, though they typically compensate through higher interest rates.
Are Mortgage Points Tax Deductible in 2026?
The Internal Revenue Service allows tax deductions for mortgage discount points under specific circumstances, but the rules differ based on property type and loan purpose.
Primary Residence Purchase: According to IRS Topic 504, you can generally deduct discount points in full during the year you pay them on your primary residence if you meet specific criteria (IRS, 2026):
- The loan is secured by your main home
- Points represent prepaid interest, not fees for services like appraisals, title insurance, or property taxes
- Paying points is an established business practice in your area
- The amount doesn’t exceed points typically charged in your region
- You use the cash method of accounting (most taxpayers do)
- You provided funds equal to or greater than the points charged
H&R Block notes that for the 2026 tax year, you must itemize deductions on Schedule A (Form 1040) rather than taking the standard deduction to claim mortgage points (H&R Block, 2025). The standard deduction for 2026 is $32,200 for married couples filing jointly, $24,150 for heads of household, and $16,100 for single filers (Yahoo Finance, 2024).
Refinancing and Second Homes: ConsumerAffairs explains that points paid on refinances or second homes must be deducted ratably over the loan’s life rather than all at once (ConsumerAffairs, 2025). For a 30-year mortgage with $3,000 in points, you’d deduct approximately $100 annually.
Important Limitation: SmartAsset emphasizes that mortgage interest deductions, including points, apply only to total mortgage debt up to $750,000 for loans originated after December 15, 2017 ($1 million for earlier loans.
Non-Deductible Charges: The IRS clarifies that origination fees covering administrative costs are not tax-deductible, as they don’t represent prepaid interest (IRS, 2026). Bankrate confirms this distinction: “Origination points are not tax-deductible” (Bankrate, 2025).
Understanding Discount Points, Origination Fees, and Tax Deductibility in 2026
Mortgage points offer a strategic tool for reducing long-term interest costs when you plan to keep your mortgage beyond the break-even point. They differ fundamentally from origination fees—points buy down your rate while origination fees cover lender costs. For 2026, discount points remain tax-deductible on primary residence purchases when you itemize deductions, though refinances and second homes require amortization over the loan term.
Before purchasing points, calculate your break-even period, consider how long you’ll keep the mortgage, and compare the upfront cost against potential monthly savings and tax benefits.
References
Bankrate. (2025, October 24). What are mortgage points and how do they work?
ConsumerAffairs. (2025, December 16). Are mortgage points tax deductible?
H&R Block. (2025, July 8). Deducting mortgage points: Are mortgage points tax deductible?
Internal Revenue Service. (2026, January 22). Topic home mortgage points.
