Are you hearing about “buying points” and wondering if it’s smart for a Boca Raton purchase? You’re not alone. With rates moving and closing costs adding up, knowing when discount points pay off can save you real money. In this guide, you’ll learn what points are, how to run the breakeven math, and when it makes sense to use them in Boca Raton. Let’s dive in.
What mortgage points are
Mortgage points, often called discount points, are prepaid interest. You pay a fee at closing to lower your interest rate for the life of the loan. One point typically costs 1% of your loan amount.
Types of points and buydowns
- Discount points: Prepaid interest that permanently lowers your rate.
- Origination points or fees: Lender charges to create the loan. These do not lower your rate.
- Temporary buydowns: A structure like a 2-1 buydown that lowers your rate for a short period, then steps up to the note rate.
How points change your rate
A common rule of thumb is that 1 point can reduce your rate by about 0.25% on a 30-year fixed. The actual impact varies by lender, loan program, loan size, and market conditions. Always review your lender’s Loan Estimate for the exact rate change and cost.
Breakeven explained
Buying points only makes sense if you keep the loan long enough to recoup the upfront cost through monthly savings.
Breakeven formula
- Cost of points = number of points × 1% × loan amount
- Monthly savings = payment without points − payment with points
- Breakeven (months) = cost of points ÷ monthly savings
Monthly principal and interest are calculated using the standard amortization formula. The key idea is simple: if the monthly savings add up to your upfront cost within your planned hold period, points can be worth it.
Illustrative Boca Raton examples (30-year fixed)
Assumptions for examples: rate without points 6.50%, rate with 1 point 6.25% (1 point lowers rate by 0.25%). These are illustrative. Use your lender’s current quote for decisions.
Entry-level scenario
- Price: $400,000; 20% down → loan $320,000
- Cost of 1 point: $3,200
- Monthly PI at 6.50%: about $2,022.40
- Monthly PI at 6.25%: about $1,970.56
- Monthly savings: about $51.84
- Breakeven: $3,200 ÷ $51.84 ≈ 61.7 months (about 5.15 years)
Move-up scenario
- Price: $800,000; 20% down → loan $640,000
- Cost of 1 point: $6,400
- Monthly savings: about $103.68
- Breakeven: $6,400 ÷ $103.68 ≈ 61.7 months
Upper tier scenario
- Price: $1,500,000; 20% down → loan $1,200,000
- Cost of 1 point: $12,000
- Monthly savings: about $194.40
- Breakeven: $12,000 ÷ $194.40 ≈ 61.7 months
What this means: The breakeven period often lands between 4 and 7 years. If you expect to keep the mortgage longer than breakeven, points can make sense. If you will sell or refinance sooner, they usually do not.
Boca Raton factors to weigh
How long you’ll keep the mortgage
If you plan to move or refinance before reaching breakeven, skip the points. Seasonal residents and buyers with short holding periods in Boca Raton often do not recoup upfront costs.
Cash at closing and liquidity
Points raise your closing costs. In Boca Raton, many condos and gated communities have HOA fees that affect your monthly budget. You may prefer to use cash for a larger down payment, moving costs, HOA reserves, or an emergency fund instead of paying points.
Conforming vs. jumbo
Higher-priced Boca Raton homes often use jumbo loans. Jumbos can price points differently than conforming loans. Sometimes 1 point buys less or more than a 0.25% rate drop. Ask your lender for program-specific pricing.
Loan program rules
FHA, VA, USDA, conventional, and portfolio loans handle points and seller-paid concessions differently. Confirm what is allowed for your specific program before you decide.
Taxes and Florida specifics
Points are prepaid interest. Federal tax treatment depends on your situation, and Florida has no state income tax. Talk with a tax professional about deductibility for your loan type and occupancy.
Rate outlook and refinance plans
If you think rates may drop and you plan to refinance in a few years, permanent points become less attractive. A temporary buydown or no points might fit better if a future refinance is part of your plan.
Permanent points vs temporary buydowns
- Permanent discount points: Lower your rate for the entire term. Best when you expect to keep the mortgage past breakeven.
- Temporary buydowns (like 2-1): Lower payments early, then the rate resets to the note rate. Useful for easing into payments during the first years.
Choose a temporary buydown if you need near-term payment relief and expect income to rise or plan to refinance before the buydown ends. Choose permanent points if you will likely hold the mortgage for many years.
Seller concessions and negotiations
In some markets, you can negotiate for the seller to pay some or all of your discount points. This can help you keep cash on hand while still getting a lower monthly payment. Be sure to check the concession limits for your loan program.
Quick decision checklist
Ask yourself:
- How long will I keep this mortgage or stay in the home?
- Do I have the extra cash at closing, or would I rather use it for a higher down payment or reserves?
- What exact rate reduction does 1 point buy for my loan type today?
Ask your lender for:
- A Loan Estimate showing cost with 0 points vs 1 or more points
- An amortization schedule for each option
- A breakdown of any seller concessions and whether they can be applied to discount points
Talk with a tax advisor about deductibility for your situation and occupancy.
Run your numbers with these prompts
Use these templates to compare scenarios with your lender or calculator tool. Replace the bracketed items with your actual numbers.
- Basic breakeven: “Calculate breakeven months for a 30-year fixed purchase mortgage. Home price: [$X]. Down payment: [$Y%]. Loan amount: [calculated]. Rate without points: [R1%]. Rate with 1 point: [R2%]. Number of points: [1].”
- Multi-point compare: “Compare payments and breakeven for 0 points, 1 point, and 2 points on a 30-year loan. Home price: [$X]. Down payment: [$Y%]. Rates: R0 (no points), R1 (1 point), R2 (2 points). Show monthly payment, monthly savings, breakeven months, and total interest saved over 30 years for each.”
- Temporary buydown: “Compare a permanent 1-point buy down vs a 2-1 temporary buydown for the first two years. Inputs: price [$X], down [$Y%], note rate [R%], buydown structure (2-1), cost of buydown [as quoted]. Show monthly payments for years 1–3, breakeven relative to permanent buy down, and total first-5-year interest plus costs.”
- Hold-period sensitivity: “For loan [amount], compute the cash comparison of buying 1 point vs not buying over hold periods of 3, 5, 7, and 10 years. Inputs: rates with and without points.”
Next steps for Boca Raton buyers
If you expect to stay in your Boca Raton home beyond breakeven and you have the cash, discount points can lock in meaningful savings. If you plan to refinance or move sooner, focus on flexibility or a temporary buydown. Either way, get precise quotes from your lender so you can compare apples to apples.
Ready to map the numbers to a specific Boca Raton property? Reach out to Klaus Gonche for clear, data-informed guidance tailored to your goals.
FAQs
What are mortgage discount points and how do they work?
- Discount points are prepaid interest paid at closing. Each point usually costs 1% of the loan amount and lowers your interest rate for the life of the loan.
How do I calculate the breakeven on points?
- Divide the upfront cost of the points by the monthly payment savings. The result is the number of months you need to keep the loan to break even.
Do discount points make sense for Boca Raton condos with HOA fees?
- Points only change principal and interest, not HOA fees, taxes, or insurance. Include all monthly costs in your budget, then decide if the long-term savings justify the upfront points.
Are points better than a higher down payment?
- It depends on your goals. A higher down payment lowers your loan amount and may help you avoid PMI. Points lower your interest rate. Compare the breakeven of points to the benefits of a larger down payment.
Should I buy points if I expect to refinance soon?
- Usually not. If you think you will refinance before reaching breakeven, the upfront cost of points is unlikely to pay off.
Can the seller pay my discount points in Boca Raton?
- Sometimes. Seller-paid points are allowed within program limits. Confirm the rules and any caps for your specific loan type with your lender.
How do jumbo loans in Boca Raton affect points?
- Jumbo loans often price points differently than conforming loans. The rate reduction per point can be larger or smaller, so request a lender quote for your exact loan size.
