Paying 'points' upfront to buy down your mortgage interest rate is a common move at closing — and it can be deductible, but the timing of that deduction depends heavily on whether the points were paid on a home purchase or a refinance.
What mortgage points actually are
Each 'point' equals 1% of your loan amount, paid upfront in exchange for a lower interest rate over the life of the loan. On a $400,000 mortgage, one point costs $4,000. Points paid to actually reduce your rate ('discount points') are treated differently from certain lender fees that are sometimes also labeled points but don't function the same way.
Points on a home purchase: usually deductible in full, immediately
When you pay discount points to purchase your main home, and the points meet several IRS conditions — the loan is secured by your home, paying points is an established business practice in your area, and the amount isn't unusually high for that area — you can generally deduct the full amount in the year you paid them, rather than spreading the deduction out.
Points on a refinance: usually spread over the life of the loan
Points paid to refinance an existing mortgage generally must be deducted gradually over the life of the new loan, rather than all at once — a $6,000 point cost on a 30-year refinance is deducted at roughly $200 per year. If you refinance again or sell the home before the loan term ends, any remaining undeducted points can typically be deducted in full in that final year.
A partial exception for refinance cash used on home improvements
If you use part of the refinance proceeds specifically to improve your main home, the portion of the points attributable to that improvement amount may be deductible immediately, while the rest of the points on the balance still spread out over the loan term. This requires tracking which portion of the refinanced funds actually went toward the qualifying improvement.
Frequently asked questions
Do I need a lender statement to prove I paid points?
Yes — your Form 1098 from the lender should show points paid, and your closing disclosure documents the amount and purpose in detail; keep both with your tax records.
What if the seller paid the points on my behalf when I bought the home?
Seller-paid points on a purchase can generally still be deducted by the buyer, subject to the same rules that apply to points the buyer pays directly.
Are points on a home equity loan or HELOC treated the same way?
Generally similar rules apply, but the deductibility also depends on whether the loan proceeds were used to buy, build, or substantially improve the home — see our HELOC interest deduction guide for that separate requirement.