Points reduce your permanent mortgage rate. A HELOC (home equity line of credit) provides flexible access to cash later. Points win if your goal is the lowest possible rate. HELOC wins if you value flexibility and want to keep your cash available.
How Points Work
One point costs 1% of your loan amount and typically reduces your rate by about 0.25%. On a $300K loan, one point costs $3,000 and saves roughly $45 per month. The savings add up the longer you keep the loan.
HELOC Benefits
A HELOC lets you borrow against your home equity on demand. Interest is only charged on what you draw, and rates are usually variable. There are closing costs, but they are often lower than a cash-out refinance. A HELOC gives you a financial safety net without tying up money upfront.
Points vs HELOC Comparison
Buying points is a one-time decision at closing. Paying $3,000 for a point that saves $45 per month breaks even in about 5.5 years. If you stay longer, you save money. If you sell or refinance before break-even, you lose. A HELOC leaves your cash available and gives you liquidity, but the variable rate introduces risk if rates rise.
Decision Framework
Ask yourself: Do I have extra cash after my down payment and closing costs? Will I stay in this home longer than 5 years? Do I want the lowest possible monthly payment? If yes, points make sense. If you prefer having an emergency fund or plan to use equity soon for renovations, keeping cash and getting a HELOC later may be better.
Cost Analysis
On a $350K loan at 7%: buying two points ($7,000) drops your rate to about 6.5%, saving roughly $115 per month. Break-even is about 61 months. Over 10 years, you save about $13,800 minus the $7,000 cost = $6,800 net. A HELOC on the same property would cost about $1,000-$2,500 to open and give you access to tens of thousands of dollars on demand.
When Each Wins
Points win when: you have solid cash reserves, plan to stay 7+ years, and want the lowest payment. A HELOC wins when: cash is tight at closing, you want a financial cushion, or you plan to use equity for specific projects and prefer paying interest only when you draw.
Patrick's Take: "I sometimes see buyers stretch to buy points and then have no cash left for emergencies. A lower rate is great, but not if it leaves you without a safety net. If your cash reserves are thin after closing, skip the points and keep the HELOC option open."