Mortgage Points Calculator
Work out whether buying discount points pays: cost of the points, monthly saving, simple and opportunity-cost break-even, net gain for the years you keep the loan and the return on the points.
| Cost of the points | — |
|---|---|
| Payment without / with points | — |
| Monthly saving | — |
| Simple break-even | — |
| Break-even counting lost return on the cash | — |
| Net result after the years you keep the loan | — |
| Interest saved over the full term | — |
| Return on the points as an investment | — |
| Verdict | — |
In short
One discount point costs 1% of the loan and lowers the rate by roughly 0.125–0.375 points. Break-even months = cost ÷ monthly saving: on 360,000, one point (3,600) that cuts 6.75% to 6.5% saves 59.50 a month and breaks even in about 61 months, so it only pays if you keep the loan more than five years.
Who this is for: Borrowers deciding whether to pay points for a lower rate.
How discount points work
- One point = 1% of the loan, paid at closing, in exchange for a lower rate — commonly 0.125–0.375 points of rate per point, set by the lender's pricing grid on the day.
- Simple break-even = cost ÷ monthly saving. The fuller version here also credits the faster balance pay-down at the lower rate and charges the return the cash would have earned.
- Points make sense when you will keep the loan well beyond break-even — long-term buyers in a stable home. They rarely make sense if you expect to refinance into lower rates or move within a few years.
- Lender credits are negative points: a higher rate buys lower closing costs; same arithmetic in reverse.
- Ask the lender for the rate at 0, 0.5, 1 and 2 points and run each — the best deal is often not the biggest discount.
See also: Mortgage Payment Calculator (PITI).
Assumptions
- Cost = loan × points ÷ 100; simple break-even = cost ÷ (payment without − payment with).
- Opportunity-cost break-even: first month where cumulative payment savings plus the lower remaining balance exceed the points grown at the investment return.
- Return on points = annualised gain over the years kept.
Worked example
Payment falls from 2,335 to 2,275 — 59.50 a month. Simple break-even 61 months; counting the faster balance reduction and the 4% the cash could earn, about 58 months. After 7 years you are roughly 1,600 ahead — a return of about 8.4% a year on the 3,600, but only because you stayed past year 5. Over the full term the point saves about 21,400.
Frequently asked questions
How much does one point lower the rate?
Typically 0.125–0.375 of a percentage point; it varies by lender and day, so use the actual quotes rather than a rule of thumb.
Are mortgage points worth it?
Only if you keep the loan past the break-even — usually 4–7 years. If there is any chance of refinancing or moving sooner, keep the cash.
Are points tax-deductible?
In the US, points on a purchase mortgage are generally deductible in the year paid if you itemise; refinance points are spread over the loan term. Elsewhere, generally not.
Is it better to buy points or make a bigger down payment?
A bigger down payment reduces the balance and may remove PMI; points only cut the rate. Run both — the down payment usually wins unless you are already at 20%.
How many points can I buy?
Usually up to 3–4; lenders cap them and the rate reduction per point shrinks as you buy more.
Do points reduce the loan balance?
No — they only lower the rate; a larger down payment reduces the balance.
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