Thinking about paying points to lower your mortgage rate in Walnut? It can be a smart move, but only when the math and your plans line up. With many local purchases touching high-balance or jumbo loan levels, you want a clear way to compare options before you lock a rate. This guide breaks down what points are, how to run a simple break-even test, and Walnut-style examples that show when buying points makes sense. Let’s dive in.
Mortgage points basics
What discount points are
Discount points are prepaid interest you pay at closing to permanently lower your mortgage interest rate. One point equals 1% of your loan amount. Paying points can reduce your monthly payment and the total interest you pay over time.
Discount vs origination points
Origination points are lender fees for making the loan. They are not the same as discount points and do not reduce your rate. When you compare quotes, make sure you know which points are discount points and which are origination fees.
Permanent vs temporary buydowns
This guide focuses on permanent discount points that reduce your rate for the full loan term. Temporary buydowns, such as a 2-1 buydown, only lower the rate for the first years and use different math.
How much does one point lower your rate?
Each discount point typically reduces the interest rate by about 0.125% to 0.25% per point. The exact reduction varies by lender, loan size, program type, and market conditions. For example, on an $800,000 loan, one point costs $8,000.
Always ask for rate sheets that show the exact rate at 0 points, 1 point, and 2 points for your loan type. That lets you compare apples to apples.
Break-even math made simple
Use this simple framework to test your options:
- Cost of points = loan amount × points percentage.
- Calculate the monthly payment at the higher rate and at the reduced rate for the same term.
- Monthly savings = payment without points minus payment with points.
- Break-even months = cost of points ÷ monthly savings.
Because the cost of points and the payment both scale with loan size, the break-even period is often similar across loan sizes when the rate drop per point is the same.
Walnut examples with real numbers
Assumptions for illustration: 30-year fixed, 20% down, no points rate at 6.50%, 1 discount point lowers the rate to 6.25%. Actual pricing varies by lender and loan program.
Example A: $1,000,000 purchase, $800,000 loan
- Cost of 1 point: $8,000
- Payment at 6.50%: about $5,058
- Payment at 6.25%: about $4,926
- Monthly savings: about $131
- Break-even: about 61 months, or 5.1 years
Example B: $1,200,000 purchase, $960,000 loan
- Cost of 1 point: $9,600
- Monthly savings: about $157
- Break-even: about 61 months
Example C: $800,000 purchase, $640,000 loan
- Cost of 1 point: $6,400
- Monthly savings: about $105
- Break-even: about 61 months
Key takeaway: If you expect to keep the loan longer than the break-even period, buying points can pay off through lower payments and total interest. If you will likely sell or refinance sooner, points often are not worth it.
Jumbo vs conforming in Walnut
Walnut home prices often push beyond typical conforming loan limits, so high-balance or jumbo loans are common. That matters because point pricing and rate reductions can differ between conforming and jumbo programs. Some lenders offer a smaller rate drop for each point on jumbo loans, and pricing for a second point can have diminishing returns.
Ask each lender for side-by-side quotes for your exact loan type and down payment. Compare 0 points, 1 point, and 2 points to see the actual cost and savings.
When buying points makes sense
- You plan to keep the home and the loan beyond the break-even period.
- You have extra cash at closing and prefer a lower fixed payment.
- Your lender offers a meaningful rate drop per point.
- You are comfortable with a permanent rate reduction rather than keeping more cash on hand.
When buying points does not make sense
- You plan to sell or refinance within the break-even window.
- You need the cash for your down payment, reserves, or other priorities.
- The rate reduction per point is small, stretching break-even too far out.
Cash-to-close tradeoffs to weigh
- Larger down payment to reduce the loan size or keep the loan within conforming limits.
- Avoiding or reducing mortgage insurance on certain loan types.
- Building emergency reserves and keeping liquidity.
- Covering moving costs, repairs, or improvements.
- Investing the same cash elsewhere if you expect a better return.
Seller-paid points and offer strategy
In some Walnut negotiations, you can ask the seller to cover discount points as a concession. That lowers your rate without adding to your cash-to-close. Program limits apply to seller concessions, and rules differ by loan type, so confirm what is allowed with your lender before you write the offer.
Taxes and records
For many purchase loans on a primary residence, discount points may be deductible as mortgage interest in the year you pay them if they meet IRS conditions. For refinances, points are usually deducted over the life of the loan. Keep your closing statement and talk with a qualified tax professional about your specific situation.
Quick buyer checklist
- Get firm quotes showing 0, 1, and 2 discount points for your exact loan type and down payment.
- Calculate break-even months using the quotes and your expected time in the home.
- Confirm your cash-to-close and whether seller concessions are realistic in your offer.
- Ask about program rules for seller-paid points and any limits on total concessions.
- Review potential tax treatment and keep all records.
- Compare other uses for the same cash, including a larger down payment or reserves.
- If a 15-year loan is on the table, price points on that option too and compare break-even.
- For larger loans common in Walnut, request jumbo pricing to see true point-to-rate tradeoffs.
Next steps
If you want help running numbers for a Walnut property or structuring your offer around seller concessions, our local team can guide you. We will walk you through lender quotes, break-even math, and cash-to-close tradeoffs so you can decide with confidence. Connect with the About You Team to get a tailored plan in English, Mandarin, or Taiwanese.
FAQs
What are mortgage discount points for Walnut buyers?
- Discount points are prepaid interest you pay at closing to permanently lower your mortgage rate, typically costing 1% of the loan per point.
How do I calculate the break-even on buying points?
- Divide the cost of points by the monthly payment savings between the no-points rate and the buy-down rate to get break-even months.
Do points reduce my principal or just my rate?
- Points reduce your interest rate, which lowers your monthly payment and total interest over time; they do not reduce your loan principal.
Should I buy points on a 15-year loan vs 30-year?
- Points often deliver larger monthly savings on a 15-year loan, which can shorten break-even, but the choice still depends on how long you will keep the loan.
Can a Walnut seller pay my discount points?
- Yes, seller-paid points are possible as a concession, subject to loan program rules and limits; confirm details with your lender before you draft the offer.
How are discount points treated for taxes?
- Purchase points on a primary residence may be deductible if IRS conditions are met, while refinance points are usually deducted over the life of the loan; consult a tax professional.
