Mortgage rates may have come down from their peak seen a few years ago, but for many borrowers, they’re still far from ideal. Buying mortgage points can help lower your monthly costs.
With mortgage points, you’ll pay an up-front fee in exchange for a lower interest rate — and monthly payment — for the life of your mortgage loan.
Depending on how you file your tax returns, points may also offer a potential tax deduction. Here’s what you need to know about mortgage discount points and your taxes.
Dig deeper: How the mortgage interest tax deduction works
Mortgage points — also called discount points — are a tool used to reduce your mortgage rate. You pay an up-front fee (at closing), and your lender gives you a lower rate in return. Essentially, it’s a way of prepaying interest on the home loan and reducing your monthly payment.
You’ll pay 1% of the loan amount for every “point,” generally lowering your rate by around 0.25%. So, on a $500,000 loan, you’d pay $5,000 to go from a 6% rate to a 5.75% rate, for example. (Each lender does this differently, though, so you may get a smaller or larger reduction depending on who you choose as your mortgage lender.)
You can also buy fractional rates. For example, if you don’t want to spend the full $5,000, you could buy half a point and reduce your rate by 0.125% instead — or whatever fractional amount your lender offers. You’ll pay for the points or fractional points you purchase as part of your total closing costs. Their estimated costs will be on your closing disclosure, which your lender is required to give to you at least three business days before your closing appointment.
Read more: What are mortgage discount points, and should you pay for them?
Many closing costs are tax deductible. Chief among them is mortgage interest. Since points are a form of prepaid mortgage interest, they’re also tax deductible — to an extent.
Technically, you can write off all the mortgage interest you pay each year, up to $750,000 ($375,000 if married filing separately) in total mortgage debt. That limit can span multiple loans, and it can include mortgage points too. This limit is $1 million ($500,000 if married filing separately) if you took out your mortgage prior to Dec. 16, 2017.
There’s an important catch: Even though you pay for mortgage discount points all at once at closing, it’s not a one-time write-off.
For instance, if you pay $5,000 for points, you won’t be allowed to deduct all $5,000 in one year. Instead, your deduction will need to be spread out over your entire loan term. So, if you paid $5,000 for points on a 30-year loan, you’d divide $5,000 by 360 — the number of months in your loan term — and deduct 12 months’ worth of that cost every year you have the loan. In this example, that’d be a deduction of about $166 annually across 30 years.
To qualify for a points deduction, the property used to secure your mortgage loan must be a “qualified home.” In the eyes of the IRS, this means a primary residence or second home with sleeping, cooking, and toilet facilities. Houses, condos, co-ops, mobile homes, houseboats, and other properties can all fall into this category.
If the property is a second home and you rent it out at any point in the year, you must meet certain annual usage thresholds to qualify for the write-off (otherwise, it’s considered a rental property — not a home and different deductions apply). There are several rules about renting out your home and interest deductions, so speak with a tax professional if this scenario applies to you.
If you’re hoping to deduct points on a home equity loan or home equity line of credit (HELOC), you can do this, too, as these are technically considered mortgages. To qualify, you must use the funds from the HELOC or home equity loan to “buy, build, or substantially improve” your home, according to the IRS.
Read more: How to get a HELOC in 7 simple steps
Finally, to write off home mortgage points, you need to itemize your tax returns rather than take the standard deduction. Here are the standard deduction allowances for the tax years 2025 and 2026.
If your total potential itemized deductions — including those beyond your mortgage interest ones — come to more than the standard deduction for the tax year, then itemizing your returns can be a smart financial move. Talk to a tax professional to be sure.
Dig deeper: Standardized vs. itemized tax deductions
Mortgage points and mortgage interest aren’t the only things you can deduct from your taxable income as a homeowner. Property taxes are also deductible (up to $10,000 total annually), and you may be able to write off expenses like home office costs, as long as you use your home office specifically for business purposes.
If you’re unsure which tax deductions you qualify for, talk to a qualified tax professional. They can help you maximize your write-offs and reduce your total tax burden.then itemizing your returns can be a smart financial move.
Learn more: 8 tax deductions for homeowners
Your mortgage lender should mail you a Form 1098 detailing how much you paid in mortgage points and interest across the year. You’ll put this info into Line 8A on tax Form 1040, Schedule A, to claim these costs as an itemized deduction.
You can deduct mortgage interest and mortgage points on your annual tax returns. Property taxes and home office costs are also popular homeownership costs that are tax deductible. Remember that you must itemize your returns — not take the standard deduction, to be eligible for these write-offs.
Yes, mortgage interest paid for your second home is tax deductible, but only up to the cap set by the Internal Revenue Service. For mortgages taken out after Dec. 16, 2017, the IRS lets you write off interest on up to $750,000 in total mortgage debt. The limit is $1 million for mortgages taken out before this date.
That depends on how much interest you paid, as well as what other itemized expenses you are eligble to claim. The standard deduction for the 2025 tax year is $31,500 for married couples filing jointly, $23,625 for heads of household, and $15,750 for solo tax filers and married couples filing separately. For the 2026 tax year, the standard deduction will be $32,200 for married couples filing jointly, $24,150 for heads of household, and $16,100 for those filing solo or married filing separately. If your itemized deductions don’t exceed these thresholds, then taking the standard deduction is likely your best move.
Are closing costs and points tax deductible?
Some closing costs are tax deductible. Any form of mortgage interest, including prepaid interest and mortgage points, are deductible. Property taxes, up to a certain limit, are also deductible.
No, mortgage points do not deduct directly from your mortgage balance, though they do save you money in the long run. With mortgage points, you’ll pay an up-front fee at closing and get a lower interest rate in return. This lower rate will reduce your monthly payment, as well as your long-term interest costs. You also may qualify for a tax deduction.
This article was edited by Laura Grace Tarpley.
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