$6,000.00
6
%
$1,896.20
$1,798.65
$97.55
62
months
$29,118.90
$6,000.00
6
%
$1,896.20
$1,798.65
$97.55
62
months
$29,118.90
The Mortgage Points Calculator helps you decide whether buying discount points is a smart financial move. Mortgage points (also called discount points) are upfront fees paid to the lender at closing in exchange for a reduced interest rate on your loan. Each point costs 1% of the loan amount and typically reduces your rate by 0.25%.
Buying points is essentially prepaying interest. You pay more upfront in exchange for a lower monthly payment over the life of the loan. The critical question is whether you will stay in the home long enough to recoup the upfront cost through monthly savings — this is the break-even point.
For example, on a $300,000 loan, two discount points cost $6,000 upfront but reduce the rate from 6.5% to 6.0%. This saves approximately $99 per month. At that rate, you would break even in about 61 months (just over 5 years). If you stay longer than 5 years, buying points saves money; if you sell or refinance sooner, you lose money on the deal.
Points can be a particularly good investment if you are confident you will keep the mortgage for many years, interest rates are high and unlikely to drop further (making refinancing unlikely), and you have extra cash available at closing. The interest rate reduction from points is also tax-deductible in the year they are paid for a purchase (and amortized over the loan term for refinances).
Lenders may offer fractional points (e.g., 0.5 or 1.5 points) and the exact rate reduction per point varies between lenders and market conditions. This calculator lets you adjust both the number of points and the reduction per point to accurately model any offer you receive.
Cost of Points = Loan Amount × Points ÷ 100
New Rate = Base Rate − (Points × Rate Reduction per Point)
Monthly payments with and without points use: M = P × [r(1+r)n] / [(1+r)n − 1]
Monthly Savings = Old Payment − New Payment
Break-Even = Cost of Points ÷ Monthly Savings
Net Lifetime Savings = (Monthly Savings × Total Months) − Cost of Points
The cost of points is a one-time closing cost. The new rate shows your reduced interest rate. If the break-even point is shorter than your expected time in the home, buying points is advantageous. Net lifetime savings shows the total benefit over the full loan term. Generally, if you plan to stay 5+ years, 1-2 points can be worthwhile.
Inputs
Results
2 points cost $6,000 but save $97/month. Break-even in ~5 years, net savings ~$29,000.
Inputs
Results
1 point costs $2,000, saves $33/month. Break-even in 5 years.
Each discount point equals 1% of the loan amount paid upfront to reduce your interest rate. One point on a $300,000 loan costs $3,000 and typically reduces the rate by 0.25%.
Yes, points paid on a home purchase are generally deductible in the year paid. Points paid for refinancing must be amortized over the loan term. Consult a tax professional.
It depends on how long you will keep the loan. Calculate the break-even point for different scenarios. Most borrowers find 1-2 points optimal if staying 5+ years.
Discount points reduce your rate. Origination points (or fees) are a charge for processing the loan and do not reduce your rate. Only discount points provide a rate benefit.
The rate reduction per point varies by lender and market conditions. Typical range is 0.125% to 0.375% per point. Always compare offers from multiple lenders.
Points are typically not worth buying if you plan to sell or refinance within 3-5 years, if you need the cash for other purposes, or if you can instead increase your down payment to eliminate PMI.
Yes, most lenders allow buying half points or quarter points. For example, 0.5 points on a $300,000 loan costs $1,500 and reduces the rate by approximately 0.125%.
Yes, point costs are part of closing costs and are reflected in the APR disclosure. This is why the APR is higher than the interest rate when no points are purchased, or closer to the rate when points are bought.
A larger down payment reduces the loan amount (and may eliminate PMI), while points reduce the rate. Compare the monthly savings from each option to determine which is better for your situation.
Yes, you can choose a higher rate in exchange for lender credits that offset closing costs. This is essentially the opposite of buying points — higher rate but lower upfront cost.
Roboculator Team
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