Mortgage Points Calculator
Find out how long it takes to break even on discount points and whether they're worth buying.
What are mortgage discount points?
Mortgage discount points are an upfront fee you pay your lender at closing in exchange for a lower interest rate over the life of the loan. One point typically costs 1% of your loan amount and usually lowers your rate by roughly 0.25%, though the exact trade-off varies by lender and market conditions. Buying points is essentially prepaying interest to reduce your monthly payment, so the decision comes down to how long you plan to keep the loan.
How is the break-even point calculated?
The break-even point is the number of months it takes for your monthly savings from the lower rate to add up to the amount you paid for the points. Divide the total cost of the points by your monthly payment savings to get the break-even month. If you plan to stay in the home or keep the loan (without refinancing) longer than the break-even period, buying points generally saves you money. If you expect to sell or refinance sooner, paying points usually isn't worth it.
When do points make the most sense?
Points tend to make the most financial sense for buyers who are confident they'll stay in their home well past the break-even point, have the extra cash available at closing without depleting their emergency fund, and are locking in a rate they expect to keep for many years. Buyers who anticipate moving, refinancing, or paying off the loan early within a few years are usually better off keeping their cash and accepting the higher rate.
Frequently Asked Questions
What is a mortgage discount point?
A discount point is an upfront fee equal to 1% of your loan amount that you pay at closing in exchange for a lower interest rate on your mortgage. It's essentially prepaid interest that reduces your monthly payment for the life of the loan.
How do I know if buying points is worth it?
Compare the break-even point (how many months it takes your monthly savings to cover the cost of the points) to how long you plan to keep the loan. If you'll keep the loan longer than the break-even period, points typically save you money overall.
How much does one mortgage point typically cost?
One point usually costs 1% of your total loan amount. On a $300,000 loan, one point would cost $3,000. Lenders may also offer fractional points, such as a quarter or half point.
How much does buying a point lower my interest rate?
It varies by lender and market conditions, but a common rule of thumb is that one point lowers your rate by roughly 0.25%. Ask your lender for their specific rate sheet since the relationship between points and rate reduction changes over time.
Are mortgage points tax deductible?
In many cases, discount points on a primary residence purchase loan can be deducted in the year paid, subject to IRS rules. Points on a refinance are often deducted over the life of the loan instead. Consult a tax professional for your specific situation.
What if I sell or refinance before the break-even point?
If you sell or refinance before reaching the break-even month, you won't fully recoup the cost of the points, meaning you would have been better off keeping that cash and accepting the slightly higher rate.
Can a seller or builder pay for my mortgage points?
Yes, in many transactions a seller or homebuilder can offer to pay for discount points as a concession to help close the sale, which lowers your rate without costing you anything upfront.
Is it better to buy points or make a larger down payment?
It depends on your goals. A larger down payment reduces your loan balance and can eliminate PMI, while points lower your interest rate but don't reduce the loan balance itself. Run both scenarios through a calculator to see which saves you more based on how long you'll keep the loan.