Mortgage Discount Points Buy-Down Calculator
Calculate break-even time and savings from buying mortgage discount points.
Each point typically costs 1% of loan and cuts the rate by 0.25%.
A discount point is prepaid interest. You pay the lender extra at closing in exchange for a permanently lower rate. The standard quote: 1 point = 1% of the loan, and 1 point usually buys down the rate by 0.25%. Both vary by lender, day, and loan type, so always confirm specifics before signing.
The break-even math is one division. Months to break even = (cost of points) / (monthly payment savings). Buy 2 points on a $400,000 loan, you pay $8,000 upfront. If your monthly P&I drops by $100, you break even in 80 months. Stay in the loan past month 80 and the points were worth it.
Why the numbers stop being intuitive. 0.25% off the rate sounds tiny. On a $400k 30-year loan, dropping the rate from 7.0% to 6.75% saves about $66/month. Two points (a 0.5% buy-down) at $8,000 saves about $134/month. The break-even is generally 4 to 7 years. Most people live in their home or hold the loan that long, but not always.
When points make sense.
- You plan to stay in the home for 7+ years.
- You are not going to refinance soon (refinancing wipes out the points).
- You have the cash on hand at closing without raiding emergency reserves.
When points do not make sense.
- First-time buyer with thin reserves. Cash matters more than rate.
- You think you will sell or refi within 5 years.
- Rates are likely to drop. Points are essentially betting that today’s rate is durable.
Negative points (lender credits). Some lenders will GIVE you cash at closing in exchange for a slightly higher rate. The math is the same break-even, just inverted. If you take $4,000 in lender credit at the cost of $80/month higher payment, the math says you “break even” at month 50. That means you are ahead by $4,000 right now, and behind on monthly cash flow forever. Useful when you are short on closing cash.
Tax angle. Discount points are deductible mortgage interest in the year paid (for primary residences). That softens the upfront blow if you itemize. Most people do not itemize anymore after the 2017 standard-deduction increase, so do not assume the deduction.
Worked example. $350,000 loan, 30 years.
- No points: 7.0% rate, $2,329 P&I
- 2 points ($7,000): 6.5% rate, $2,212 P&I
- Monthly savings: $117
- Break-even: 7,000 / 117 = 60 months (5 years)
- 10-year hold net savings: ($117 × 120) - $7,000 = $7,040