Mortgage Points Calculator: Are Discount Points Worth It?
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One mortgage point costs 1% of the loan and usually lowers the rate by about 0.25%. You break even when the monthly savings add up to what the points cost, which is the cost divided by the monthly savings.
Paying 2 points ($7,000) cuts the rate from 6.750% to 6.250% and lowers your payment by $115.08 a month. You break even after about 5 years 1 month. If you keep the loan 7 years you come out ahead by $2,667.
Compare 0 to 5 points
| Points | Rate | Cost | Payment | Saves per month | Break-even |
|---|---|---|---|---|---|
| 0 | 6.750% | $0 | $2,270.09 | – | – |
| 1 | 6.500% | $3,500 | $2,212.24 | $57.86 | 61 months |
| 2 | 6.250% | $7,000 | $2,155.01 | $115.08 | 61 months |
| 3 | 6.000% | $10,500 | $2,098.43 | $171.67 | 62 months |
| 4 | 5.750% | $14,000 | $2,042.50 | $227.59 | 62 months |
| 5 | 5.500% | $17,500 | $1,987.26 | $282.83 | 62 months |
Show the steps
- Cost: $350,000.00 × 2% = $7,000.00.
- New rate: 6.750% − 2 × 0.250% = 6.250%.
- Payments: $2,270.09 without points, $2,155.01 with points. Monthly savings $115.08.
- Break-even: $7,000.00 ÷ $115.08 = 60.8 months.
Break-even on discount points
Cost = loan × points ÷ 100
Break-even months = cost ÷ (payment without − payment with)
- Discount points are one way to lower the rate. Lender credits do the opposite: a higher rate in exchange for lower closing costs.
- Points may be tax deductible when you buy a primary home. Ask a tax professional.
- The simple break-even ignores what the cost of the points could have earned if invested instead.
Estimates for planning and learning, not financial, tax, legal or medical advice. Check figures with your lender, tax preparer or doctor before you act.
About this calculator
Discount points let you pay cash at closing for a lower interest rate. They make sense if you will keep the loan long enough for the lower payment to repay the up-front cost.
This calculator shows the cost, the new payment, the break-even time and your net result over the years you plan to stay. A table compares zero to five points side by side so you can see where extra points stop paying off.
How to use it
- Enter the loan amount and the rate your lender quotes with no points.
- Enter the number of points and how much each point lowers the rate. Your loan estimate shows both.
- Enter how many years you expect to keep the loan before you sell or refinance.
- Compare the break-even point with your time horizon, and read the comparison table.
When points make sense
Points are worth buying when you expect to keep the mortgage well past the break-even point and you have spare cash after your down payment and emergency fund. They are a poor fit if you may move or refinance within a few years.
Points versus a bigger down payment
Cash used for points cannot go into the down payment. A larger down payment can lower your loan amount and remove mortgage insurance, so compare both uses of the cash.
Origination points
Some lenders charge origination points as a fee for making the loan. They do not lower your rate. Only discount points buy a lower rate.
Sources
Quick check: test yourself
One discount point on a $500,000 loan costs…
Correct answer: $5,000. One point is 1% of the loan amount.
Points cost $3,000 and save $75 a month. What is the break-even?
Correct answer: 40 months. 3,000 ÷ 75 = 40 months.
You expect to sell in 2 years and the break-even is 5 years. Should you pay points?
Correct answer: No. You would sell before the savings repay the cost.
Pick an answer for each question.
Common questions
What is a mortgage point?
A fee equal to 1% of the loan amount, paid at closing to lower your interest rate.
How much does a point lower the rate?
Often about 0.25%, but it varies by lender and market. Check your loan estimate.
How do I find the break-even point?
Divide the cost of the points by the monthly payment savings. The answer is the number of months until you recover the cost.
Are mortgage points tax deductible?
Often yes for a primary home you buy, but there are conditions. Ask a tax professional.
Is it better to pay points or make a bigger down payment?
It depends on your goals. A larger down payment can remove mortgage insurance, which may save more than the rate cut.
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