Mortgage Points Break-Even Calculator
Calculate how long it takes to recoup the upfront cost of buying mortgage discount points through lower monthly payments.
What Are Mortgage Discount Points? One mortgage point = 1% of your loan amount paid upfront at closing. Each point typically reduces your interest rate by 0.125% to 0.25% (varies by lender). Paying points is essentially prepaying interest to get a lower rate for the life of the loan.
Monthly Payment Formula (Amortization) P = L × [r(1+r)^n] / [(1+r)^n − 1]
Where:
- P = monthly payment
- L = loan amount
- r = monthly interest rate (annual rate / 12)
- n = total number of payments (years × 12)
Break-Even Formula Monthly savings = payment without points − payment with points Break-even months = cost of points / monthly savings
Worked Example Loan: $300,000 | Term: 30 years | Rate without points: 6.75% | Rate with points: 6.25% | Points cost: $3,000
Monthly payment without points: $1,946 Monthly payment with points: $1,847 Monthly savings: $99 Break-even: $3,000 / $99 = 30.3 months (about 2.5 years)
If you keep the loan beyond 30 months, buying points saves you money. If you sell or refinance before then, the points were not worth it.
When Buying Points Makes Sense
- You plan to stay in the home long-term (well past the break-even point)
- You have the cash available and don’t need it for other investments
- Current rates are high and you expect to hold the mortgage for many years
When to Skip Points
- You may sell or refinance within a few years
- The cash could earn more invested elsewhere
- You need the cash for closing costs, repairs, or emergency fund