Mortgage Points In Connecticut Explained

Wondering if paying mortgage points will really lower your payment in a meaningful way? You are not alone. Many Wilton buyers debate whether to use cash upfront for points, ask for lender credits to reduce closing costs, or explore a temporary buydown. In this guide, you will learn how points, credits, and buydowns work, how to run a quick break-even, and what to consider in Connecticut. Let’s dive in.

Mortgage points: the basics

Mortgage points are prepaid interest you pay at closing to reduce your interest rate for the life of the loan. One point usually costs 1% of your loan amount.

• Discount points: Optional, paid at closing to lower your rate.
• Lender credits: The lender covers part of your closing costs in exchange for a higher rate.
• Origination points/fees: A lender fee for processing your loan. This is different from discount points.

The exact rate reduction you get for each point varies by lender, loan program, and market conditions. The tradeoff is shown on your Loan Estimate and Closing Disclosure, which makes side-by-side comparison easier. For plain-English explanations, see the CFPB guide on discount points and lender credits and the CFPB overview of the Loan Estimate.

How points change your rate

Each point often reduces a fixed-rate mortgage by roughly 0.125 to 0.375 percentage points. The lender sets the price of that rate drop, and it can change daily. On days when rates move a lot, the point-to-rate tradeoff can shift as well.

Because point pricing changes, always compare current quotes from more than one lender and request versions that show your rate with and without points, plus an option with lender credits.

Temporary vs permanent buydowns

You will hear about two common buydown approaches:

• Permanent buydown: You pay discount points to lower the rate for the full term of the loan.
• Temporary buydown: A 2-1 buydown lowers your rate by 2% in year one and 1% in year two, then the rate returns to the original note rate in year three. The cost of this subsidy is paid upfront, often by the seller or builder as a concession.

A temporary buydown can help your early payments, which may support qualifying if your income is expected to rise. Just remember that payments step up after the buydown period.

What the math looks like

The core math is simple, and a quick example shows how to compare options. These are illustrative numbers to demonstrate the concept.

Example A: Paying 1 point on a 30-year loan

• Purchase price: $600,000; 20% down; loan = $480,000
• Base rate (no points): 4.50% 30-year fixed
• With 1 point: 4.25%
• Monthly payment at 4.50%: about $2,434
• Monthly payment at 4.25%: about $2,357
• Monthly savings: about $77
• Cost of 1 point: $4,800
• Break-even: $4,800 ÷ $77 ≈ 62 months (about 5.2 years)

Takeaway: If you plan to keep the loan longer than about five years, the upfront point may pay off through lower payments.

Example B: Taking a lender credit instead

• Lender credit: $4,800 in exchange for moving your rate from 4.25% back to 4.50%
• You receive $4,800 at closing but pay about $77 more each month
• The break-even is the same 62 months in reverse. After that point, the higher rate costs more than the upfront credit saved you.

Example C: 2-1 temporary buydown

• Loan: $480,000; permanent rate: 5.00%; payment at 5.00% ≈ $2,578
• Year 1 at 3.00%: payment ≈ $2,025 (savings ≈ $553 per month)
• Year 2 at 4.00%: payment ≈ $2,292 (savings ≈ $286 per month)
• Total buydown subsidy needed: roughly $9,936
• Often funded by a seller, builder, or lender as a concession

Takeaway: A seller-paid buydown can ease the first two years, then the payment returns to the permanent rate.

Break-even: the quick test

Use this simple check to see if points make sense:

1. Find the cost of the point(s): loan amount × points percentage.
2. Calculate monthly payment at the base rate and with points.
3. Monthly savings = base payment minus payment with points.
4. Break-even months = cost of points ÷ monthly savings.

If your break-even is 60 months and you expect to keep the mortgage 8 to 10 years, points can be attractive. If you plan to move or refinance in 3 years, taking credits or skipping points usually makes more sense.

For current rate context when you shop, check the Freddie Mac Primary Mortgage Market Survey, then compare that backdrop to written quotes from local lenders.

Connecticut and Wilton factors to weigh

Higher loan sizes and jumbo loans

Wilton home prices often require larger loans. If your loan amount is above conforming limits, jumbo pricing can change how much a point lowers your rate. Small rate changes on bigger loans can mean larger dollar savings each month. Ask lenders for both conforming and jumbo options if you are near the threshold.

Seller concessions and closing costs

Connecticut towns have their own recording and conveyance fee structures. Total cash to close can be meaningful, so some buyers prefer lender credits or a seller-paid buydown to preserve cash for reserves, moving, or improvements. Discuss current concession trends with your agent when you write offers.

State programs for first-time buyers

The Connecticut Housing Finance Authority offers first-time buyer programs, down payment assistance, and occasionally lower rates. Review eligibility and today’s offerings on the Connecticut Housing Finance Authority website, then compare them with your lender’s quotes.

Licensing and consumer protections

If you want to check a lender’s license status or file a complaint, visit the Connecticut Department of Banking consumer pages. You can also use your Loan Estimate to compare fees and rate options line by line.

Tax treatment of points

Points paid on a purchase of your primary home are often deductible in the year paid if IRS conditions are met. Refinance points are usually deducted over the life of the loan. If points are financed into the loan, deductibility may be spread out. Review the IRS guidance on points in Topic No. 504, and consult your tax professional.

Should you pay points, take credits, or use a buydown?

Use your expected time in the home and your cash needs to guide the choice:

• If you expect to keep the loan 7 or more years and have ample cash, paying points can lower lifetime interest costs.
• If cash is tight, a modest lender credit can reduce upfront costs. Know that the higher rate increases monthly payments.
• If you need early payment relief or help qualifying, a temporary buydown can work well when funded by the seller.
• If you are near a conforming limit, compare both conforming and jumbo point tables. The tradeoff can differ by program.

Your decision checklist

• Get at least three written Loan Estimates showing: no points, points, and lender credits.
• For each option, calculate upfront cash to close, monthly payment, break-even months, and total interest over a 5 to 10 year horizon.
• Ask your lender to show how much the rate drops per point for your exact loan type.
• Confirm whether any points are financed into the loan and how that affects taxes.
• If considering a 2-1 buydown, get the dollar cost and confirm who is paying it. Make sure it appears clearly on your disclosures.

Common Wilton buyer scenarios

• Short stay, 2 to 4 years: Points rarely recover their cost. Consider no points or a lender credit.
• Long-term hold, 7+ years: Points are more likely to pay off, especially on larger loans.
• Low-cash at closing: Lender credits or a seller-paid temporary buydown can preserve your reserves.
• Need help qualifying today: A temporary buydown may help if you expect income to rise, and if the seller can fund the subsidy.

What to do next

• Pull current quotes from more than one local lender. Ask for versions with and without points and with a lender credit.
• Use the simple break-even formula to compare options with your expected time in the home.
• If you are a first-time buyer, check CHFA offerings and compare to conventional quotes.
• Review your Loan Estimate carefully and ask questions until the tradeoffs are clear.

If you want help thinking through the numbers and how they fit your Wilton move, reach out. As a finance-informed local advisor, I can align your budget, timing, and offer strategy so you feel confident from pre-approval to close. Connect with Linda Dunsmore Real Estate to schedule a personalized consultation.

FAQs

What are mortgage discount points in Connecticut?

• Discount points are prepaid interest you pay at closing to lower your mortgage rate. One point typically costs 1% of your loan amount and can reduce your rate by a small amount set by the lender.

How do I calculate the break-even on points?

• Divide the cost of the points by the monthly payment savings. The result is the number of months you need to keep the loan to recover your upfront cost.

Are points tax-deductible when buying a primary home?

• Often yes, if IRS rules are met. Purchase points on a primary residence may be deductible in the year paid. Refinance points are usually deducted over the loan term. See IRS Topic No. 504 and consult a tax pro.

What is a 2-1 buydown, and who pays for it?

• A 2-1 buydown lowers your rate by 2% in year one and 1% in year two, then the rate returns to the original note rate. The upfront cost is a subsidy typically paid by a seller, builder, or lender as a concession.

Should I use lender credits instead of paying points?

• Lender credits reduce your cash to close but raise your interest rate and monthly payment. Credits can be smart if you plan a short stay or need to preserve cash for reserves and moving costs.