The break-even for points is often 5+ years. If you plan to sell in exactly 5 years, points may not pay off. Lender credits may be the safer choice for shorter planned holds.
5-Year Analysis
Five years is right at the edge of the typical break-even period for points. On a $300K loan at 7%, one point ($3,000) reduces the rate to 6.75%, saving about $48/month. Over 60 months, savings total $2,880, which is $120 short of the $3,000 cost. You almost break even but do not quite get there.
Risk Assessment
If you sell in exactly 5 years, you lose a small amount. If you sell in 4 years, the loss is larger. If you sell in 6 years, you come out ahead. The risk is that life happens and you sell earlier than planned. With a 5-year timeline, the edge is razor thin.
Credit Alternative
Consider taking a slightly higher rate with lender credits instead. On a $300K loan, a rate of 7.25% might give you a lender credit of $3,000. That cash in your pocket now is worth more than a partial rate reduction that might not break even. Use the credit to cover closing costs or moving expenses.