Mortgage Points Calculator
Calculate the break-even point for buying mortgage discount points and determine if paying upfront to reduce your interest rate is worth it.
Mortgage discount points vs. lower interest rate is a break-even analysis: paying upfront points to permanently reduce your interest rate only makes financial sense if you keep the mortgage long enough to recover the upfront cost through lower monthly payments.
Cost of points: Point Cost = Loan Amount × (Points × 0.01) (Each point = 1% of loan amount)
Monthly payment formula: M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]
Where:
- P = principal (loan amount)
- r = monthly interest rate = annual rate ÷ 12
- n = number of payments (years × 12)
Monthly savings from lower rate: Monthly Savings = Payment (no points) − Payment (with points)
Break-even period: Months to Break Even = Point Cost ÷ Monthly Savings
Effective annual savings: Annual Savings = Monthly Savings × 12
When buying points makes sense:
- You plan to stay in the home longer than the break-even period
- Rates are high (greater potential savings per point)
- You have cash available at closing without depleting emergency funds
Typical rule of thumb: Each point reduces the interest rate by approximately 0.20–0.25%.
Worked example: $400,000 30-year mortgage. Option A: 7.00% rate, 0 points. Option B: 6.75% rate, 2 points.
- Points cost: $400,000 × 0.02 = $8,000 upfront
- Monthly payment at 7.00%: $2,661
- Monthly payment at 6.75%: $2,594
- Monthly savings: $2,661 − $2,594 = $67/month
- Break-even: $8,000 ÷ $67 = 119 months = 9.9 years
If you plan to stay in the home more than 10 years, buying the 2 points is worthwhile. If you might refinance or move in 5–7 years, paying the extra $8,000 upfront is likely a poor financial decision.