Mortgage discount points let you trade cash at closing for a lower interest rate over the life of your home loan. One point usually costs 1% of the loan amount and shaves roughly 0.25% off your rate, but whether that trade actually pays off depends entirely on how long you keep the loan. This mortgage points calculator compares your monthly payment with and without points, then tells you exactly how many months it takes to break even — the moment your cumulative monthly savings finally exceed the upfront cost.
Type in your loan amount, the rate your lender quoted without points, and how many points you are considering. Every figure updates instantly: the cash you pay at closing, your new rate, your new monthly payment, the monthly savings, the break-even date, and the total interest you would save if you hold the loan to the end of its term.
How to Use
- Enter the Loan Amount — the principal balance you are financing after your down payment, before closing costs. On a $400,000 home with 20% down, that loan amount is $320,000.
- Type your Interest Rate (no points) — the lender's "par" quote with zero discount points. This is the baseline your bought-down rate is compared against.
- Set Discount Points to Buy. Start at 1.0 to model the standard deal, or slide down to 0.5 to try a half-point buydown.
- Adjust Rate Cut per Point if your lender quoted something unusual. The classic assumption is 0.25%, but some programs deliver 0.375% or more per point, especially when rates are volatile.
- Set Cost per Point if your lender is not using the standard 1% rule. Most charge exactly 1% of the loan per point, so you can usually leave this alone.
- Choose the Loan Term — 30 years is the default, but the math works the same for a 15-year or 20-year fixed loan.
The result card then shows the points cost, your rate after buying points, both monthly payments side by side, the monthly savings, and the break-even point in months. Compare that break-even period with how long you realistically plan to own the home. If you will move or refinance before you reach break-even, buying points loses money; if you will stay well past it, points are one of the safest guaranteed returns you can earn.
What Are Mortgage Points?
A mortgage point — formally a "discount point" — is prepaid interest you pay the lender at closing in exchange for a permanently lower note rate. It is a rate buydown, not an origination fee. The lender lets you effectively prepay a chunk of future interest today so that every future monthly payment is smaller.
The standard market convention is:
- One point costs 1% of the loan amount. On a $400,000 loan, one point is $4,000.
- One point reduces the rate by about 0.25%. A 7.00% par rate becomes 6.75% after one point.
- Points are often tax-deductable as mortgage interest when you itemize, which can improve the real return even further.
Origination points are different: those are fees the lender charges to make the loan and do not buy you a lower rate. This calculator models discount points only.
The Break-Even Formula
The whole decision comes down to one number — the break-even period:
Break-Even Months = Cost of Points ÷ Monthly Savings
Where the monthly savings is the difference between the payment at your par rate and the payment at the bought-down rate, computed with the standard amortization formula M = P × r(1 + r)ⁿ / ((1 + r)ⁿ − 1).
Worked example on a $400,000 loan at 7.00% for 30 years. One point costs $4,000 and drops the rate to 6.75%. The no-points payment is about $2,661.21, and the with-points payment is about $2,594.39. That is a monthly saving of $66.82. Dividing the $4,000 cost by $66.82 gives a break-even of roughly 59.9 months — just under five years. Stay past five years and every remaining month is pure savings; over the full 30-year term, the lifetime interest saving is about $20,054 on a $4,000 outlay.
If the rate is ever set to 0%, the engine simply splits the principal evenly across the number of months instead of dividing by zero.
When Points Make Sense (and When They Do Not)
Buying points is a guaranteed, after-mortgage-style return equal to the spread between your par rate and your invested alternatives. It is most attractive when:
- You plan to stay in the home well beyond the break-even point — ideally seven years or more.
- You have cash at closing beyond your down payment and emergency fund.
- You do not expect to refinance soon. Rates falling is the enemy of bought-down points, because a refinance resets the clock and you never recover the upfront cost.
Skip points when:
- You expect to move, sell, or refinance inside the break-even window.
- You are stretching your down payment; keeping the cash as a larger down payment can remove PMI and may be worth more.
- You would otherwise need to borrow the money to pay for the points.
A common middle ground is buying a single point rather than two or three: it keeps the break-even short while still locking in meaningful savings.
Examples
Example 1 — The standard $400,000 loan. A borrower locks 7.00% on a $400,000, 30-year loan and buys one point for $4,000, dropping the rate to 6.75%. The monthly payment falls from $2,661.21 to $2,594.39, saving $66.82 per month. They break even in about 60 months, and if they keep the loan for all 30 years they save roughly $20,054 in lifetime interest. They plan to stay 10 years, so the points pay off comfortably.
Example 2 — A jumbo loan where the dollars get large. On a $1,000,000 loan at 6.50%, buying two points costs $20,000 and cuts the rate to 6.00%. The monthly payment drops from about $6,320.68 to $5,995.51 — a saving of $325.17 per month. The break-even is about 61.5 months, and the lifetime saving over 30 years is around $97,063. Because the savings scale with the loan size, points on larger mortgages are usually the most rewarding.
Example 3 — Zero points (the no-buydown baseline). Leaving Discount Points at 0 means no upfront cost, no rate reduction, and zero break-even math to worry about. The with-points and no-points payments are identical, which is the right choice when you are unsure how long you will stay or when you would rather keep closing costs low.
Example 4 — The quick-mover trap. On the same $400,000 loan, the buyer in Example 1 gets transferred for work after only three years (36 months). They paid $4,000 in points but collected only 36 × $66.82 ≈ $2,406 of savings — they are about $1,594 underwater on the points. This is exactly why checking the break-even period against your own timeline matters more than the lifetime saving.
FAQ
How much does one mortgage point cost?
One discount point typically costs 1% of the loan amount. On a $400,000 loan that is $4,000; on a $1,000,000 loan it is $10,000. Lenders sometimes price points slightly above or below 1%, so confirm the exact dollar figure on your loan estimate. Use the Cost per Point field to match your lender's quote.
How much does a point lower my interest rate?
A single discount point usually lowers your APR by about 0.25%. For example, a 7.00% par rate becomes 6.75% after one point, 6.50% after two points, and so on. In volatile or tight markets the reduction can be 0.25%–0.375% per point, so ask your lender for the exact buydown grid and enter it in the Rate Cut per Point field.
How is the mortgage points break-even calculated?
The break-even period equals the upfront cost of the points divided by the monthly payment savings they produce. On a $400,000 loan, one point costs $4,000 and saves about $67 per month, so break-even is $4,000 ÷ $67 ≈ 60 months. Stay past that point and every additional month is net savings; sell or refinance before it and the points cost more than they saved.
Is it worth buying mortgage points?
Points are worth it if you will keep the loan well past the break-even point — generally planning to stay in the home seven years or more. They are less worth it if you expect to move, sell, or refinance within a few years, because the upfront cost will not have been recovered. Compare your expected holding period against the break-even months this calculator shows.
Are mortgage points tax-deductible?
Discount points are generally treated as prepaid mortgage interest and may be deductible on Schedule A when you itemize, subject to IRS limits. The deduction must often be spread across the life of the loan rather than claimed all at once. Consult a tax professional, because whether and how you can deduct points depends on your closing details and current tax law.
Should I buy points or put a larger down payment?
Both lower your monthly cost, but differently. A larger down payment reduces the principal you pay interest on and can remove PMI; points reduce the rate on the principal you borrow. If your down payment is under 20%, putting extra cash toward down payment to drop PMI often beats buying points. If you already have 20% down and plan to stay long-term, points can deliver a strong guaranteed return.
Can I negotiate how much points cost?
Yes. Points, like the base rate, are negotiable, and different lenders will quote different buydown grids. Shopping two or three lenders and comparing both the par rate and the points price is the best way to confirm you are getting a real deal rather than a marketed one.
Disclaimer
This mortgage points calculator is provided for informational purposes only and does not constitute financial, lending, tax, or investment advice. Estimates assume the standard 1%-per-point and 0.25%-rate-cut conventions and the fixed amortization formula; actual lender pricing, buydown grids, fees, and tax treatment vary by institution, market, credit profile, and program. The break-even and lifetime-savings figures are illustrations, not offers. Always confirm your exact rate, point cost, and closing terms directly with a licensed mortgage professional before buying points.