It's been many years since I took actuarial math so I'll ask for help on this one! I'm looking to minimize my monthly mortgage payments - right now I'm less concerned about overall interest paid over the course of a loan. I'm trying to decide if I should use points to get a lower interest rate on a refinance. As I understand it, one point lowers the mortgage interest rate by .25%. Sketching out the formulas, it looks comparing monthly payment with our without points is a function of the original interest rate and the number of points purchased. My next step is to make a spreadsheet comparing different values (or do it in a more statistical programming language, we'll see how ambitious I get.) I think points also have some tax benefit down the line. Is there anything else I should consider?

I'm sure you know this so Im more asking this to learn your reasoning. Given that your refinancing now when rates are still high relative to the lows of covid, is there no chance you would ever refi again?

Great question - the lows of covid were historically low and I'm not banking on it happening again any time soon. 5% and thereabouts is considered a low interest rate in the grand scheme of things

To clarify, if rates are at an all time low like 2.875% then the chances of it going down further are very low hence the chance of an additional refi is very low making buying points a no brainer.

With points you're not so much looking to see if its cheaper to buy down the points. It's determining the breakeven point. Points are just a prepayment of interest. At some point in a 30 year mortgage the savings of the lower rate will overtake the upfront cost of the points. It comes down to will you be in the house at the breakeven point and what was the opportunity cost of having to put that money in up front.

@curved-toothbrush-84425 there is more to it since prepaid interest is non refundable, if you end up refinancing early on, the remaining term prepaid interest was a waste of money.

But the cost of the points gets rolled into the principal of the loan, and payed out over time with mortgage payments. In fact, the quotes I've seen have me paying less per month after using points, even with the cost of points included in the principal of the loan. I just don't see how there's a "break even" point if I pay less per month for the whole life of the loan

Your principal is higher. If you sold the house a year later you still need to pay that additional principal back.

Oh that's fine, I don't plan on doing that soon.

Theres still a breakeven date. You can use this to calculate when it is https://www.mortgagecalculators.info/calc-discount.php#begincontent

But until you hit the break even date, you're paying less per month... So essentially is the risk that you sell before the breakeven date, so the money you've saved every month isn't enough to cover that extra principal you still owe?