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What a points calculator answers
Lenders offer a menu: take this rate for free, or pay a fee at closing and take a lower one. The lower monthly payment is easy to see and the upfront cost is easy to feel. What is hard to see is the crossover, the month when the accumulated savings catch up with what you paid. This calculator finds that month and then looks past it, because the answer depends less on the rate than on how long you will really keep the loan.
How it works
Enter the loan, your no-points rate, and what the lender charges: how many points, and how much each one cuts the rate. The tool computes the new rate and both payments, then divides the cost of the points by the monthly saving to get your break-even. It also fills in a comparison table for zero through four points so you can see whether the second or third point is still a good deal, which is often not the case.
How it is calculated
Cost of points is loan × points ÷ 100. New rate is base rate − points × cut per point. Break-even in months is cost of points ÷ (old payment − new payment). The net figure then adds up total payments and the remaining balance for both options over your holding period, and subtracts the two.
Worked example: $350,000 loan at 6.75%
With no points, principal and interest is $2,270.09. One point costs $3,500 and cuts the rate to 6.5%, giving a payment of $2,212.24, a saving of $57.86 a month. Break-even arrives in month 61, just over five years. If you keep the loan seven years, the point leaves you about $2,659 ahead; if you sell or refinance after three, you are about $865 behind.
Look at the table: with a steady 0.25% cut per point, every extra point breaks even at about the same month, so more points mean a bigger check for the same wait. If your lender cuts less than 0.25% for later points, the break-even stretches out quickly.
When points make sense, and when they do not
Long horizon, stable plans
Points fit a buyer who plans to stay ten years or more and does not expect to refinance. The longer the loan runs, the more the monthly saving compounds.
Rates you expect to fall
If you think you will refinance when rates drop, points on the first loan are money thrown away. Use the refinance calculator to price that scenario.
Cash has other jobs
Money spent on points is not available for a larger down payment. A bigger down payment can remove PMI or lower the loan, so compare both on the main mortgage calculator. Cash can also go toward extra principal, which you can test in the payoff calculator.
Estimate only. Actual pricing varies by lender and day. Compare Loan Estimates before paying any points.
Frequently asked questions
What is a mortgage point?
One discount point costs 1% of the loan amount and is paid at closing in exchange for a lower interest rate for the life of the loan. On a $350,000 loan, one point costs $3,500. Discount points are different from origination points, which are a lender fee and do not lower your rate.
How much does one point lower my rate?
A quarter of a percentage point per point is a common rule of thumb, but it varies by lender, loan type and market. Ask for a rate sheet showing the rate at 0, 1 and 2 points and put the real numbers in the rate-cut field above.
What is the break-even point?
It is the number of months of lower payments it takes to earn back the money you paid for points. In the default example, $3,500 of points saves about $58 a month, so you break even in month 61. If you expect to move or refinance sooner than that, points lose money.
Why does the calculator show a net figure as well?
Break-even ignores the loan balance. Because a lower rate pays down principal faster, the net figure compares total cash paid plus balance owed at the end of your holding period. It is a more complete answer to "was it worth it?"
Are discount points tax deductible?
Points paid on a purchase of a main home can sometimes be deducted, but the rules depend on your situation and whether you itemize. Ask a tax professional before you count on it.
Is a temporary buydown the same thing?
No. A 2-1 or 1-0 buydown lowers your rate for the first year or two and then returns to the note rate, usually funded by the seller or builder. This calculator models a permanent buydown with discount points. For temporary buydowns, use the 2-1 buydown calculator.