Mortgage Points vs. Treasuries vs. the S&P 500: Where $4,000 Does the Most on a $400,000 Loan

"Should I Buy Points?" Is the Wrong Question

Most explanations of mortgage discount points stop at "pay more now, pay less later" and leave it there. That framing skips the actual decision a borrower is making: discount points are not free money, they're cash that could have gone somewhere else. On a $400,000 loan at today's rates, the honest comparison is not "points versus nothing" -- it's "a guaranteed, modest reduction in your mortgage rate versus whatever that same cash would have earned sitting in an investment account instead." Run the real numbers for 5 and 10 years, in two different places that cash could go, and the answer flips depending on the horizon and what you assume about returns -- which is itself the most useful finding here. It also means the usual advice to "buy points if you'll keep the loan long enough" is incomplete: long enough compared to what the cash would otherwise have been doing matters just as much as long enough compared to the upfront cost.

This article puts the points money head-to-head with two specific alternatives — a 1-year Treasury yield and the S&P 500’s long-run average — over 5 and 10 years. For the full 10-year cost comparison with the tax-deduction question and a pre-purchase checklist, see Mortgage Discount Points vs. Investing the Cash: A 10-Year Cost Comparison.

Generic suburban neighborhood (illustration, not the property described in this article). Photo: Serg Bataiev, original file: Wikimedia Commons, license: CC0

The Setup: What $4,000 Actually Buys You on a $400,000 Loan

Freddie Mac's Primary Mortgage Market Survey put the average 30-year fixed rate at 7.32% for the week of October 22, 2026, down from 7.40% the prior week and up from 6.19% a year earlier. That's the par rate we'll use as the baseline -- the rate available with no points paid. (Freddie Mac has stopped publishing the average points and fees that went with that rate, because lenders aren't always required to report them anymore, so this comparison uses a separately sourced assumption for what a point actually buys, explained below.)

One discount point costs 1% of the loan amount -- $4,000 on a $400,000 loan -- and lowers the rate by some amount that, officially, isn't fixed. The Consumer Financial Protection Bureau's own 2024 data spotlight on discount points states plainly that a point "has no fixed value in terms of the change in interest rate," and separately cites a Freddie Mac analysis finding the rate difference between borrowers who paid points and those who didn't was "minor," without giving a number. The CFPB's own illustrative example, though, uses exactly this loan size: on a $400,000 loan, one point ($4,000) lowers the rate by 0.25 percentage points. That's the convention this article uses, applied to the current 7.32% par rate -- clearly an assumption, not a guarantee any specific lender will offer that exact trade today.

Option	Rate	Upfront cost	Monthly payment
No points (par)	7.32%	$0	$2,747.72
1 point	7.07%	$4,000	$2,680.04
2 points	6.82%	$8,000	$2,613.03

All three figures assume a 30-year fixed term, a $400,000 loan amount, and the 0.25-percentage-point-per-point convention applied twice for the two-point row -- itself a simplification, since the CFPB is explicit that a second point doesn't necessarily buy the same discount as the first. The monthly payments are standard fixed-rate amortization at each rate.

One more wrinkle the calculators usually skip: taxes change the comparison, but only for some borrowers. Per IRS Topic 504 (last reviewed September 24, 2026), points paid to buy a main home are generally deductible as mortgage interest in the year paid, as long as paying points is standard practice in that area, the amount doesn't exceed what's typically charged, and the borrower pays them from their own funds at or before closing. That deduction only helps if the borrower itemizes rather than taking the standard deduction -- true for a shrinking share of filers since the Tax Cuts and Jobs Act raised the standard deduction -- and it doesn't apply the same way to a refinance, where the IRS says points must be deducted ratably over the life of the loan instead of all at once. None of the figures in this article assume a tax benefit; a borrower who does itemize should treat the points option as somewhat cheaper than shown below.

Where That Cash Could Go Instead

If a borrower skips the points, they keep that $4,000 (or $8,000) to use elsewhere -- including simply investing it. Two reasonable, very different destinations for that cash: a safe, FDIC-insured-equivalent return, and a long-run stock market average. As of October 22, 2026, the 1-year Treasury yield was 4.41% (Federal Reserve Bank of St. Louis, FRED), a reasonable stand-in for a high-yield savings account or short Treasury ladder available today. Separately, Fidelity's own investor-education page states the S&P 500's average annual total return has been about 10% since its 1957 launch, through 2025 -- a historical average, not a projection, and one that includes years with sharp losses.

Cash kept	Growth assumption	Value after 5 years	Value after 10 years
$4,000	Safe, 4.41%/yr	$4,985 (+$985)	$6,212 (+$2,212)
$4,000	Growth, ~10%/yr	$6,581 (+$2,581)	$10,828 (+$6,828)
$8,000	Safe, 4.41%/yr	$9,970 (+$1,970)	$12,424 (+$4,424)
$8,000	Growth, ~10%/yr	$13,162 (+$5,162)	$21,656 (+$13,656)

These are monthly-compounded projections off a historical average and a current quoted yield, not promises -- actual returns in both categories will vary, and the "growth" row in particular can run well below or above 10% in any given five- or ten-year stretch.

The Real Scorecard -- And What It Doesn't Capture

To compare fairly, the right number isn't "interest saved by buying points" alone -- it's total cost: the points paid upfront plus remaining interest on that path, against the interest paid on the no-points path minus whatever the un-spent cash grew into. Running the one-point case against the par-rate case:

Horizon	If the cash was invested...	Cheaper option	By how much
5 years	Safe (4.41%)	Pay the point	$55
5 years	Growth (~10%)	Skip the point, invest	$1,541
10 years	Safe (4.41%)	Pay the point	$3,887
10 years	Growth (~10%)	Skip the point, invest	$730

The two-point version follows the same pattern at larger dollar amounts: paying points wins by $105 over 5 years and $7,746 over 10 years against a safe alternative, while investing wins by $3,088 over 5 years and $1,486 over 10 years against a stock-market-average alternative. Two things stand out. First, at a safe rate of return, paying the point is close to a wash at 5 years and a clear winner at 10 -- the guaranteed rate reduction compounds in a way that a modest, risk-free investment return can't quite match over time. Second, and less intuitive, the investing advantage over the growth assumption actually shrinks between year 5 and year 10, rather than growing -- because the interest savings from the lower rate also compound over the longer horizon, closing part of the gap. Neither path "wins" outright; which one does depends entirely on the time horizon and what the alternative use of that cash actually is.

What this scorecard doesn't capture matters just as much. The safe-rate comparison is the fairer one, because paying a point is a guaranteed, risk-free reduction in cost -- comparing it against a volatile stock-market return mixes two different risk levels to make a point about dollars. A reader who would actually invest that cash in equities is also taking on a risk the points buyer isn't: a bad five-year stretch for stocks (and there have been several since 1957) could leave the invested cash worth less than it was, while the points buyer's savings are locked in regardless of what markets do. There's also a liquidity trade-off the dollar figures don't show: points are sunk the moment they're paid, while invested cash stays available if the borrower needs it. If this is a loan the borrower expects to refinance or sell within a few years, the point almost never has time to pay for itself at all, safe or not -- that break-even math is separate from, and usually shorter than, the comparisons above. Using just the monthly payment gap, not the investing comparison: the one-point case saves $67.68 a month, so $4,000 ÷ $67.68 works out to about 59 months, or just under five years, before the lower payment alone has repaid the upfront cost. The two-point case saves $134.69 a month against $8,000 upfront, which comes out to almost exactly the same 59 months. That similarity isn't a coincidence -- at this convention, each point costs 1% of the loan and buys the same 0.25-point rate cut, so the simple payback period stays roughly constant no matter how many points are bought. A borrower who expects to move, sell, or refinance before that roughly five-year mark is better off skipping points entirely, regardless of what the invested cash would have earned. This is general information, not individualized financial advice; a loan officer or fee-only financial planner can run a lender's actual quoted points against a borrower's specific plans and risk tolerance.

Related reading

• Single-Premium PMI vs. Monthly PMI on a $350,000 Loan: The Real Break-Even
• Pay Down Principal to Drop PMI Early, or Invest That $10,000 Instead? The Real Math
• HSA vs. Extra Mortgage Payments: Which $4,400 a Year Builds More by 2036?

Tip: A break-even this sensitive to your own assumptions is worth running yourself rather than trusting a lender worksheet — a financial calculator handles the amortization side, and a budget planner keeps the closing-cost cash you are weighing in plain view. (These are Amazon Associate links — we may earn a small commission on qualifying purchases.)

Sources

• Freddie Mac, Primary Mortgage Market Survey, week of October 22, 2026 -- freddiemac.com/pmms
• Consumer Financial Protection Bureau, "Data Spotlight: Trends in discount points amid rising interest rates," April 5, 2024 -- consumerfinance.gov
• Federal Reserve Bank of St. Louis (FRED), 1-Year Treasury Constant Maturity Rate (DGS1), October 22, 2026 -- fred.stlouisfed.org
• Fidelity, "S&P 500 average return," published March 6, 2026 -- fidelity.com

This article is general information, not individualized financial, tax, or legal advice. Mortgage rates, point pricing, and investment returns vary by lender, borrower, and market conditions; confirm current figures with a licensed loan officer or financial professional before making a decision based on the assumptions above.