FinanceCalcs
Mortgage Points Calculator
Should you pay discount points to buy down your mortgage rate? Compare the upfront cost against monthly savings to find your break-even month — and see exactly how much you save (or lose) based on how long you keep the loan.
Points only make sense if you stay in the loan long enough. This calculator tells you exactly how long that is.
Mortgage Points Calculator
0 points | 0% rate reduction
Break-Even: --
- Cumulative Savings
- Points Cost
Loan Comparison
| Metric | Without Points | With Points | Difference |
|---|
Net Savings by Year — Stay Duration
| Year | Cumul. Interest Savings | After Tax Deduction | Net (incl. opportunity cost) | Verdict |
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"Buying points is a bet that you’ll keep the loan long enough for the monthly savings to outweigh the upfront cost — know your break-even before you pay."
— Mortgage Planning Principle
How mortgage points work
A mortgage discount point is a fee paid upfront to buy down the interest rate on your loan. One point costs 1% of the loan amount and typically reduces the rate by 0.20–0.25 percentage points, though the exact reduction varies by lender and market conditions.
The tradeoff is straightforward: pay more at closing in exchange for a lower monthly payment for the life of the loan. Whether this is worth it depends entirely on one question — how long will you keep this loan? If you sell or refinance before the break-even point, you lose money on the points. If you stay past break-even, you come out ahead.
The break-even calculation is: upfront cost ÷ monthly savings = break-even months. A $7,600 points cost with $115/month savings breaks even in 66 months (5.5 years). If you keep the loan 10 years, you save $6,200 net. If you sell in 3 years, you lose $3,460.
For a more complete analysis, this calculator also models the opportunity cost — what the points money could earn if invested instead — and the tax deduction on points paid at closing for a home purchase, which reduces the effective upfront cost.
lightbulb Points Rule of Thumb
The average homeowner stays in their home about 8–13 years, and in their mortgage even less (due to refinancing). As a general guide:
| Expected Stay | Points Strategy |
|---|---|
| < 3 years | Almost never worth it. Upfront cost rarely recoups. |
| 3–6 years | Depends on break-even. Calculate carefully. |
| 7–10 years | Often worthwhile if break-even is under 5 years. |
| 10+ years | Strong case for points — savings compound over time. |
Also compare total lender fees — some lenders quote lower rates but higher points and origination fees. The APR and total cost over your expected stay are the best comparison metrics.
Mortgage Points FAQs
How much does one point reduce the rate?
There’s no fixed rule — it varies by lender, loan type, and market conditions. The most common rule of thumb is 0.25% rate reduction per point, but it can range from 0.125% to 0.375%. Always ask your lender for the exact rate/point tradeoff for your specific loan. The yield on a point (rate reduction per dollar paid) varies significantly across lenders — compare carefully.
Are mortgage points tax-deductible?
Points paid on a home purchase are generally fully deductible in the year paid, provided you itemize deductions and the points are a normal practice in your area. Points paid on a refinance must be amortized (deducted equally) over the loan term. The deduction is only valuable if your total itemized deductions exceed the standard deduction ($14,600 single / $29,200 MFJ in 2024). If you take the standard deduction, points provide no tax benefit.
What are negative points (lender credits)?
The inverse of discount points: the lender pays you a credit at closing in exchange for a higher interest rate. A lender credit of 1 point means the lender pays 1% of the loan toward your closing costs, and you accept a higher rate. This makes sense if you’re short on cash at closing or plan to sell or refinance within a few years before the higher rate costs more than the credit saved.
Should I pay points or increase my down payment?
Increasing your down payment reduces your loan balance permanently and may eliminate PMI (if you reach 20%), which is typically more valuable than a rate reduction from points. The optimal choice depends on your PMI cost, rate reduction per point, and how long you keep the loan. Run both scenarios to compare — a 1% larger down payment on a $380,000 loan ($3,800) vs. 1 point ($3,800) have similar upfront costs but very different long-term effects.
Terminology
Discount Points
Upfront fees paid to reduce the mortgage interest rate. Each point costs 1% of the loan amount. Distinct from origination points (lender fees for processing), though both are expressed as "points."
Break-Even Month
The month at which cumulative monthly savings equal the upfront cost of the points. Before this month, you’ve lost money on the points; after it, you’re ahead. Simple break-even = cost ÷ monthly savings. True break-even should factor in opportunity cost of the upfront payment.
Opportunity Cost
The return you forgo by paying points upfront instead of investing that money. If you pay $7,600 in points and that money could earn 5%/year, you’re giving up growing returns. True break-even accounts for this by comparing cumulative savings against cumulative opportunity cost.
APR (Annual Percentage Rate)
The effective annual cost of a loan including points and fees, expressed as a percentage. The APR is always higher than the stated interest rate when points are involved. Comparing APRs across lenders is more useful than comparing rates alone — a lower rate with high points may have a higher APR than a slightly higher rate with no points.
Lender Credits (Negative Points)
The opposite of discount points: you accept a higher rate in exchange for cash credited toward your closing costs. Useful if cash is limited or you plan to refinance soon. Same break-even logic applies in reverse.
Par Rate
The interest rate at which no discount points are required and no lender credits are given. The "no-cost" rate. Rates below par require points; rates above par generate lender credits. Par rate changes daily with market conditions.
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