Mortgage Points Calculator
Find out whether buying discount points makes financial sense by calculating your break-even period and long-term interest savings.
What this calculator does
This mortgage points calculator tells you whether paying for a lower rate is worth it. Enter the home price, your down payment, how many points you are being offered, and the two rates — with points and without — and it returns the cost of the points, the monthly saving they buy, and the month at which you break even.
The year-by-year table shows the cumulative saving building against that upfront cost, so you can see the crossover rather than trust a single number. Points are one of the few mortgage decisions with a genuinely clean answer: if you hold the loan past break-even you win, and if you do not, you lose the whole outlay.
When to use it
Use it whenever a lender presents a rate sheet with several pricing options, which is most of the time. Lenders quote the same loan at several rate and cost combinations, and the only way to rank them is to convert each into a break-even month and compare that against your plans.
It is equally useful for evaluating a seller credit or a builder incentive, since both are usually structured as a rate buydown. Run the bought-down rate against the market rate to see what the incentive is genuinely worth, then judge whether it justifies the price you are paying. And use it to rule points out — if there is any real chance you refinance or move inside five years, the calculator will show the cost never coming back.
Understanding the inputs
Home price and down payment set the loan amount, which is what points are priced against — one point is one percent of the loan, not of the purchase price. Points purchased can be fractional; lenders routinely quote half or quarter points, and partial points are usually available.
The two rates should come from the same lender on the same day, since rate sheets move daily and comparing yesterday's no-points quote against today's with-points quote is meaningless. Watch the exchange rate implied by the numbers: if 1.5 points buys only 0.25 percentage points, that is poor value, whereas 0.5 percentage points for a single point is unusually good and worth confirming for hidden conditions.
How is this calculated?
Cost of Points = Loan Amount × Points × 1%. Monthly Savings = Payment Without − Payment With. Break-Even = Cost / Monthly Savings.
A worked example
Take a $500,000 home with 20 percent down, so a $400,000 loan over 30 years. Without points the rate is 6.625 percent and the payment is about $2,561 a month. Buying 1.5 points at a cost of $6,000 drops the rate to 6.25 percent, taking the payment to roughly $2,463.
The monthly saving is about $98, so $6,000 divided by $98 gives a break-even at month 61 — five years and one month. If you keep the loan the full 30 years, total interest falls from about $522,000 to about $487,000, a saving near $35,400 for a $6,000 outlay. The catch is entirely in the timing: sell or refinance in year three and you are around $2,500 worse off.
Limitations and assumptions
The break-even calculation ignores the opportunity cost of the $6,000, which invested elsewhere would earn something, and it ignores the small tax effect for buyers who itemize. It also assumes you keep the loan and the rate unchanged — the single biggest risk to the analysis, since a rate drop that makes refinancing attractive destroys the entire value of the points you bought.
Nor does it compare points against the alternative uses of the same cash: a larger down payment that removes PMI, paying off a car loan, or simply holding reserves that make underwriting smoother. Rate sheets also change daily, so a quote is only good for its lock period. Get written Loan Estimates for both the points and no-points versions on the same day, and compare page two line by line before committing.
Common Questions
- What is a discount point worth?
- One point costs one percent of the loan amount and typically buys a rate reduction of 0.125 to 0.25 percentage points, though the exchange rate varies by lender and by day. On a $400,000 loan a point is $4,000, so it is worth asking two or three lenders what their points actually buy before assuming a standard rate.
- How do I know if points are worth buying?
- Compare the break-even month against how long you will keep the loan. If points cost $6,000 and save $98 a month, you break even at month 61. Stay eight years and you are ahead; sell or refinance in year four and you have simply handed the lender $6,000.
- What is the difference between discount points and origination fees?
- Discount points buy a lower rate and are optional. Origination fees pay the lender for processing the loan and buy you nothing. Both appear as a percentage of the loan on page two of your Loan Estimate, so read carefully — a quote advertising a low rate may simply be charging a large origination fee.
- Should I buy points or make a larger down payment?
- With a small sum, a larger down payment usually wins, especially if it crosses the 20 percent line and removes PMI. That saves the premium and reduces the loan. Points only beat that if you are already at 20 percent down and confident you will hold the loan well past break-even.
- Can the seller pay my points?
- Yes, through a seller credit, and it is a common negotiation in slower markets. Sellers are often more willing to fund a rate buydown than to cut the price, because it costs them less and helps the buyer qualify. Credits are capped by loan type and down payment, typically at three to six percent.
- What is a temporary buydown and how does it differ?
- A 2-1 buydown lowers the rate by two points in year one and one in year two, then reverts to the note rate permanently. It is a cash-flow tool, not a rate reduction — the underlying loan is unchanged. Discount points, by contrast, lower the rate for the full term.
- Do points still pay off if I refinance later?
- No — refinancing resets everything, and any points you bought stop delivering the moment the old loan is paid off. If rates are historically high and likely to fall, buying points is a bet against your own future refinance. In that environment a lender credit toward closing costs often makes more sense.
- Are negative points ever a good idea?
- Sometimes. A lender credit, sometimes called a negative point, gives you cash toward closing costs in exchange for a higher rate. It is the mirror image of buying points and it suits buyers short on cash or expecting to move within a few years — exactly the people for whom paying points is worst.
Related calculators
- Mortgage Refinance CalculatorCompare your existing mortgage against a proposed new one, including closing costs, and find the point at which the switch pays for itself.
- Mortgage Payoff CalculatorSee what sending extra money toward principal each month does to your payoff date and the interest you avoid.
- Mortgage Comparison CalculatorPut two loans side by side on the same home price and down payment, and compare monthly payment, total interest and total cost.