Mortgage Points Calculator
Discount points let you buy a lower mortgage rate: one point costs 1% of the loan amount, paid at closing. Whether that is a bargain depends on one number — the break-even month. Enter your loan, rate, term, points and the rate cut each point buys, and see the cost, the new payment, the monthly saving and how long the saving takes to repay the cost.
Are mortgage points worth it?
Mortgage discount points: Mortgage discount points are an upfront fee — one point is 1% of the loan amount — paid at closing to buy a lower interest rate for the life of the loan. On a $300,000 loan at 6.5% over 30 years, 1 point costs $3,000 and cuts the rate to 6.25%, saving $49.05 a month. Break-even is about 61 months; over the full term the interest saved is $17,658.89, a net saving of $14,658.89 — but only if you keep the loan past break-even. Source: CFPB — Owning a Home.
How to calculate the mortgage points break-even
- Multiply the loan amount by the points as a percentage — 1 point on $300,000 is $3,000.
- Subtract points × rate cut per point from the rate — 1 point at 0.25% takes 6.5% to 6.25% — and work out the monthly payment at both rates.
- Subtract the new payment from the old one for the monthly saving — here $49.05.
- Divide the points cost by the monthly saving for the break-even in months — $3,000 ÷ $49.05 is about 61 months.
Source: CFPB — Owning a Home
How this mortgage points calculator works
The cost is the loan times the points as a percentage — 1 point on $300,000 is $3,000. The rate after points is your rate minus points times the cut each point buys — by default 0.25% a point, though lenders typically offer 0.125% to 0.25%: use the figure on your Loan Estimate. The calculator works out the monthly payment at both rates with the amortization formula: the difference is your monthly saving. Dividing the cost by the monthly saving gives the break-even in months — the point where the savings have repaid what you paid for them. It also totals the interest saved over the full term, minus the points cost, for the net saving. The "years you expect to keep the loan" field re-runs the net saving over that shorter horizon. Everything runs in your browser.
The mortgage points formula
Rate after points = rate − points × rate cut per point
Monthly saving = payment before points − payment after points
Break-even (months) = cost of points ÷ monthly saving
Net saving = monthly saving × months − cost of points
Break-even here is the simple version — cost divided by monthly saving — ignoring time value and tax, so treat it as a planning figure, not a lender's quote.
Worked example
Take a $300,000 loan at 6.5% over 30 years: one point costs $3,000 and, at 0.25% per point, takes the rate to 6.25%. The payment falls from $1,896.20 to $1,847.15 — a saving of $49.05 a month. Break-even is $3,000 ÷ $49.05 = 61 months (61.2), just over five years. Over the full 30 years the interest saved is $17,658.89, so the net saving after the $3,000 is $14,658.89. Buy 2 points: $6,000, rate 6.00%, payment $1,798.65, saving $97.55 a month, break-even about 62 months, net saving $29,118.90 — roughly double the benefit, and double the cash tied up until break-even. (Source: CFPB — Owning a Home.)
When points pay off — and when they don't
Points only pay off if you keep the loan past break-even. Sell or refinance at month 30 on the worked example and the $3,000 bought only $1,471.50 of savings — a $1,528.50 loss. Keep it the full 30 years and you are $14,658.89 ahead. That is why the honest input is how long you will stay: a first home you may outgrow in four years is a bad candidate, a home you will keep for decades a good one. Refinancing resets the clock — before break-even it throws the points away. Run the calculator with your real horizon before deciding.
Discount points vs. lender credits
A lender credit is the reverse trade: the lender pays some of your closing costs in exchange for a higher rate — a negative point, roughly. Credits suit buyers short on cash at closing or likely to move or refinance soon, because the higher rate only costs money over time you may not spend in the loan. Points suit buyers with cash to spare who will stay put. Ask your lender to price the same loan three ways — with points, at par, and with a credit — and compare the break-even on each: the cheapest rate is rarely the cheapest loan. Discount points on a primary or second home are often tax-deductible as mortgage interest — check current IRS rules rather than assuming it, because limits and your filing position matter.
Frequently asked questions
What is one mortgage point worth?
One point is 1% of the loan amount, paid at closing: $3,000 on a $300,000 loan, $4,000 on $400,000. In exchange the lender cuts your rate — typically 0.125% to 0.25% per point, though the exact cut varies, so use the figure on your Loan Estimate.
How do I calculate the break-even point on mortgage points?
Divide the points cost by the monthly saving: 1 point on a $300,000 loan at 6.5% costs $3,000 and saves $49.05 a month, so break-even is about 61 months. Keep the loan longer and the points pay; sell or refinance sooner and they cost you money.
Are mortgage points tax deductible?
Discount points on a primary or second home are often deductible as mortgage interest in the year paid, but the rules have limits and depend on your filing position — check current IRS rules or ask a tax professional rather than treating it as guaranteed. Points on a rental property are usually deducted over the loan's life instead.
How much does one point lower my mortgage rate?
Typically 0.125% to 0.25%, with 0.25% the common quote — but it varies by lender, loan type and market. The calculator defaults to 0.25% and lets you change it: always use the cut your lender actually offers, from the Loan Estimate.
Is it better to buy points or make a bigger down payment?
A bigger down payment cuts the amount borrowed and can remove PMI at 20% equity — often the bigger win on a first home. Points cut the rate on the whole balance instead. Compare the points' net saving against the PMI and interest a larger down payment removes, and keep whichever leaves you ahead at your real horizon.
Sources
- CFPB — Owning a Home — Discount points, Loan Estimates and the break-even on buying down the rate.