If you plan to refinance within 3 years, buying points almost never makes sense. On a $300K loan, one point costs $3,000 and saves roughly $48/month. In 36 months, you save $1,728, which is $1,272 less than the point cost. You lose money.
3-Year Analysis
If you plan to refinance within 3 years, buying points almost never makes sense. On a $300K loan, one point costs $3,000 and saves roughly $48/month. In 36 months, you save $1,728, which is $1,272 less than the point cost. You lose money.
Lender Credits Alternative
Instead of paying points, ask your lender about lender credits. A lender credit gives you cash at closing in exchange for a higher rate. If you plan to refinance in 3 years, taking a higher rate with lender credits gives you cash now that more than offsets the temporary higher payment.
When Points Might Still Work
The only scenario where points work with a 3-year refinance plan is if the rate lock is exceptionally long (60+ days) and you expect rates to rise significantly before closing. In that case, the point cost locks in a rate that protects you from increases. But for most borrowers planning a near-term refinance, skip the points.