Mortgage Points Calculator
Calculate whether buying mortgage discount points saves money over your loan term. Enter values for instant results with step-by-step formulas.
Formula
Break-even = Points Cost / Monthly Savings
Points Cost = Loan Amount x Point Cost % x Number of Points. Monthly Savings = Payment without points - Payment with points. The break-even point tells you how many months until the upfront cost is recovered through lower payments.
Worked Examples
Example 1: Standard Two-Point Buydown
Problem: You have a $350,000 loan at 6.75%. Each point costs 1% of the loan and reduces the rate by 0.25%. Should you buy 2 points if you plan to stay 10 years?
Solution: Points cost: 2 x 1% x $350,000 = $7,000\nRate reduction: 2 x 0.25% = 0.50%\nNew rate: 6.75% - 0.50% = 6.25%\nPayment without points: $2,270/month\nPayment with points: $2,155/month\nMonthly savings: $115/month\nBreak-even: $7,000 / $115 = 61 months (5.1 years)\nNet savings over 10 years: ($115 x 120) - $7,000 = $6,800
Result: Break-even at 5.1 years | Net savings of $6,800 over 10 years | Worth buying
Example 2: Short-Term Stay Analysis
Problem: Same loan but you plan to stay only 3 years. Is buying 2 points still worthwhile?
Solution: Points cost: $7,000\nMonthly savings: $115\nTotal savings over 3 years: $115 x 36 = $4,140\nNet result: $4,140 - $7,000 = -$2,860 (net loss)\nBreak-even is 5.1 years but you leave at 3 years\nYou would not recover the upfront cost.
Result: Net loss of $2,860 | Break-even not reached | Points not recommended
Frequently Asked Questions
What are mortgage discount points and how do they work?
Mortgage discount points are upfront fees paid directly to the lender at closing in exchange for a reduced interest rate on your home loan. Each point typically costs 1% of your total loan amount and reduces your interest rate by about 0.25 percentage points, though this can vary by lender. For example, on a $350,000 loan, one point costs $3,500 and might reduce your rate from 6.75% to 6.50%. This is essentially prepaying interest to get a lower rate for the entire loan term. The reduced rate means lower monthly payments, and over a 30-year term, the cumulative savings can far exceed the upfront cost. Points are sometimes called buying down the rate.
How do I calculate the break-even point for mortgage points?
The break-even point is calculated by dividing the total upfront cost of the points by the monthly savings they provide. For instance, if buying two points on a $350,000 loan costs $7,000 and reduces your monthly payment by $115, the break-even point is $7,000 divided by $115, which equals approximately 61 months or about 5.1 years. After the break-even point, you start saving money compared to the no-points option. If you sell or refinance before reaching the break-even point, you lose money on the points purchase. This calculation is crucial because it directly connects to how long you plan to stay in the home and keep the current mortgage.
Are mortgage points tax deductible?
Mortgage points are generally tax deductible, but the rules depend on whether the loan is for purchasing or refinancing a home. For a home purchase, points paid at closing can typically be deducted in full in the year they are paid, provided the amount is within the normal range for your area and your down payment meets certain thresholds. For a refinance, points must usually be amortized and deducted over the life of the loan. For example, 2 points on a 30-year refinance would be deducted as 1/30th of the total each year. Always consult a tax professional since individual circumstances vary, and the tax benefit effectively reduces the real cost of purchasing points and shortens your break-even timeline.
How many mortgage points should I buy?
The optimal number of points depends on your loan amount, how long you plan to stay, and your available cash at closing. Buying one to two points is most common, as the marginal benefit decreases with additional points and lenders may not offer reductions beyond a certain number. Consider your opportunity cost: the money spent on points could instead go toward a larger down payment to eliminate PMI, an emergency fund, or investments that might earn higher returns. If your break-even period is 4-5 years and you plan to stay at least 7-10 years, buying points is generally worthwhile. However, if you might move or refinance within a few years, the upfront cost is unlikely to be recovered.
What is the difference between discount points and origination points?
Discount points and origination points both cost 1% of the loan amount, but they serve completely different purposes. Discount points are optional and reduce your interest rate, providing a long-term financial benefit through lower monthly payments. Origination points are fees charged by the lender to cover the cost of processing your loan application and do not reduce your interest rate at all. Origination points are essentially a lender fee that may be negotiable. Some lenders roll origination costs into the interest rate instead of charging them as points. When comparing loan offers, make sure you distinguish between these two types of points, as only discount points provide the rate reduction benefit calculated by this tool.
Can I negotiate the cost of mortgage points with my lender?
Yes, the cost of mortgage points and the rate reduction per point can vary between lenders and are often negotiable. While the standard is 1% of the loan for one point, some lenders offer half-points or fractional points, and the rate reduction per point can range from 0.125% to 0.375% depending on market conditions and the lender. Shopping around is essential because one lender might offer a better rate reduction per point than another, significantly affecting your break-even timeline. You can also ask lenders about lender credits, which work in reverse: the lender gives you money toward closing costs in exchange for accepting a higher interest rate. Comparing multiple loan estimates side by side helps you find the best deal.