Mortgage Points Calculator
Calculate the cost of buying mortgage discount points, the resulting monthly savings, and how long it takes to break even on the upfront cost.
Results
Visualization
How It Works
Mortgage discount points let you pay an upfront fee to reduce your interest rate. Each point costs 1% of the loan amount and typically lowers the rate by about 0.25%. Buying points makes sense if you plan to keep the loan long enough for the monthly savings to exceed the upfront cost.
The Formula
New Rate = Base Rate - (Points x Reduction per Point)
Monthly Savings = Payment at Base Rate - Payment at New Rate
Break-Even Months = Points Cost / Monthly Savings
Variables
- Points — Number of discount points purchased (each = 1% of loan amount)
- Reduction — Rate decrease per point (typically 0.25% per point)
- P — Loan amount (principal)
- r — Monthly interest rate
Worked Example
On a $300,000 loan at 6.5%, buying 2 points costs $6,000 and drops your rate to 6.0%. Monthly payment drops from $1,896 to $1,799, saving $97/month. Break-even is about 62 months (5.2 years). Over 30 years you save roughly $28,800 in interest.
Practical Tips
- Points are tax-deductible in the year paid for a purchase, or amortized over the loan term for a refinance.
- Buying points is most beneficial when you plan to stay in the home for at least 5-7 years.
- You can buy fractional points (e.g., 0.5 or 1.5) for proportional rate reductions.
- Compare buying points versus making a larger down payment: both reduce your monthly payment but in different ways.
- In a declining rate environment, avoid points since you may refinance soon and lose the benefit.
Frequently Asked Questions
What is one mortgage point?
One discount point equals 1% of your loan amount, paid upfront at closing. On a $300,000 loan, one point costs $3,000 and typically reduces your interest rate by about 0.25%.
Are discount points and origination points the same?
No. Discount points buy down your rate. Origination points are a lender fee for processing your loan. They look similar on closing documents but serve different purposes.
Can I negotiate the rate reduction per point?
The rate reduction per point varies by lender and market conditions. It is typically around 0.25% but can range from 0.125% to 0.375%. Always compare point pricing across multiple lenders.
Should I buy points or save the money?
If your break-even is under 5 years and you plan to keep the loan long-term, points generally make sense. If you might move or refinance sooner, keep the cash.
Are points worth it on a 15-year mortgage?
Points can still make sense on a 15-year mortgage, but the break-even must come before the loan is paid off. Run the numbers carefully since the shorter term gives less time to recoup the cost.