Should You Pay for Mortgage Points? What Contra Costa and Alameda County Buyers Need to Know

If you have been shopping for a mortgage lately, you have probably run into the term "mortgage points" or "discount points." It is one of those pieces of loan paperwork that can feel like a puzzle, especially when you are already juggling everything else that comes with buying a home in Danville, Walnut Creek, Fremont, or Dublin. I want to walk you through what points actually do, what they cost, and how to think about them if you are buying your first home here in the East Bay.

What mortgage points actually are

A mortgage point is an optional upfront fee you pay your lender in exchange for a lower interest rate. Each point typically costs 1% of your loan amount and lowers your rate by roughly 0.25%, though the exact reduction varies by lender.

Let's say you are financing a $900,000 loan, which is a realistic starting point in many of the neighborhoods I work in across Contra Costa and Alameda counties. One point would cost you $9,000 at closing. In exchange, your rate might drop from 7% to 6.75%.

That is real money either way. The question is whether the long-term savings are worth the upfront cost, and that comes down to a simple break-even calculation.

The break-even math

Cost of points divided by your monthly savings tells you how many months it takes to come out ahead. On that $900,000 loan, buying down your rate from 7% to 6.75% might save you around $150 a month. Divide the $9,000 cost by $150, and you get 60 months, or five years.

If you plan to stay in the home past that break-even point, points can be a smart move. If you think you might sell, relocate, or refinance sooner than that, your upfront cost may never pay for itself.

This is where knowing your own plans matters more than the math itself. A young family buying their first place in Dublin or San Ramon with an eye toward moving up in five to seven years should think about points differently than someone settling into a long-term home in Danville or Blackhawk with no plans to move again.

The tax picture: what to know before you decide

A few tax factors are worth understanding before you commit to points, on top of the usual mortgage math.

Mortgage point deductibility: Points are often deductible in the year you pay them if you itemize and meet IRS requirements, though refinances usually require spreading the deduction over the life of the loan instead of taking it all at once. I am not a tax advisor, so please confirm your specific situation with one before you count on this deduction.

Property tax basics under Proposition 13: Once you buy, your property tax bill is generally based on 1% of your purchase price, plus voter-approved local assessments that bring the effective rate to somewhere around 1.1% to 1.3% depending on the city and school district. Your assessed value can then only increase a maximum of 2% a year under Prop 13, which is one of the real long-term advantages of buying rather than continuing to rent in this market.

County transfer tax: Both Contra Costa and Alameda counties charge a documentary transfer tax of $1.10 per $1,000 of the purchase price. On a $900,000 home, that works out to $990. Who pays this is negotiable and varies by custom in different parts of the Bay Area, so it is worth clarifying in your offer. A handful of Alameda County cities, including Oakland, Berkeley, Alameda, Emeryville, San Leandro, and Hayward, layer on an additional city transfer tax on top of the county rate. Most of the communities I work in most often, including Fremont, Dublin, Pleasanton, and Livermore, do not add a separate city tax, and neither do the Contra Costa cities I focus on like Danville, Walnut Creek, San Ramon, Lafayette, Concord, and Pleasant Hill.

Every out-of-pocket cost a first-time buyer should budget for

Points are just one line item. If you are buying your first home, here is the full picture of what tends to come out of pocket, beyond your down payment:

Down payment: Typically 3% to 20% of the purchase price, depending on your loan program.

Earnest money deposit: Usually 1% to 3% of the purchase price, though this is credited toward your down payment at closing rather than an additional cost.

Home inspection: Budget $500 to $800 for a general inspection, and consider adding a sewer lateral inspection in older East Bay homes, which can add another $200 to $400.

Appraisal fee: Typically $600 to $900.

Loan origination and lender fees: Often around 0.5% to 1% of the loan amount, separate from any points you choose to buy.

Mortgage points, if you choose to buy them: 1% of your loan amount per point.

Prepaid property taxes and homeowners insurance: Lenders typically require several months held in an impound account at closing, which can add up to a few thousand dollars depending on your tax bill and insurance premium.

Title insurance: Costs vary with purchase price, and who pays is often negotiated between buyer and seller here in Northern California.

County transfer tax: $1.10 per $1,000 of purchase price in both Contra Costa and Alameda counties, plus any applicable city transfer tax.

Recording fees: Generally $100 to $225.

HOA transfer and move-in fees: If you are buying a condo or townhome, budget $200 to $500 for transfer documents and move-in fees.

Home warranty, if you choose one: Typically $400 to $600 for the first year.

Taken together, these costs often add up to 2% to 5% of your purchase price on top of your down payment. That is why I always encourage first-time buyers to get a full Loan Estimate early and walk through it line by line before deciding whether points make sense for your budget.

The bottom line for East Bay buyers

Mortgage points are not right or wrong across the board. They are a bet on how long you will keep your loan and how much cash you want to put to work upfront versus keep in reserve. If you are weighing this decision on a home in Contra Costa or Alameda County, I am always happy to run the break-even numbers with you against a real loan estimate and your actual plans for the home. No pressure, just a conversation about what makes sense for where you are headed.