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Mortgage & Loans
Mortgage Points Calculator — Cost, Break-Even & Lifetime Savings
Should you buy down your rate? The break-even math that decides it
When you close on a mortgage, your lender will offer to sell you discount points — an upfront fee that buys a lower interest rate for the life of the loan. The pitch sounds great: pay a little now, save every month. But points only pay off if you keep the loan long enough, and millions of American buyers hand over thousands of dollars for points they never recoup because they refinance or sell first. This calculator answers the one question that matters: how many months until the monthly savings pay back the cost — and does that happen before you'd realistically move or refinance?
The mechanics are simple. One point equals 1% of your loan amount, paid at closing. So on a $320,000 loan, one point costs $3,200 and two points cost $6,400. In exchange, each point typically shaves about 0.25% off your rate, though the exact reduction varies by lender, so always confirm the rate you're actually quoted with points.
The decision rests on a single formula:
Break-even (months) = cost of points ÷ monthly payment savings.
Worked example. Say you finance $320,000 for 30 years. Without points your rate is 6.5%, giving a principal-and-interest payment of $2,022.62/month. You buy 2 points for $6,400, which drops your rate to 6.0% and your payment to $1,918.56/month. That's a monthly saving of $104.06. Break-even = 6,400 ÷ 104.06 = about 61.5 months, or roughly 5.1 years. If you keep the loan past that point, the points start putting money back in your pocket; over the full 30 years you'd save about $37,460 in interest, or roughly $31,060 net after subtracting the $6,400 you paid up front.
The rule of thumb: buy points only if you'll keep the loan past the break-even date. The median American homeowner moves or refinances well inside 10 years, so a 5-year break-even is fine for a long-term hold but a money-loser if you'll sell in three. If you think you'll refinance the moment rates dip, points are usually a bad bet.
The most common mistake is confusing discount points with origination points. Discount points buy down your rate and are what this calculator measures; origination points are simply a lender fee for processing the loan and buy you nothing in return. Only discount points have a break-even. Also don't confuse points with your down payment — points are a fee, not equity, and unlike a bigger down payment they do nothing to reduce PMI or your loan balance.
This tool provides informational estimates only, not a loan offer or financial advice; your actual rate buy-down, points cost and payment are set by your lender at closing.
📖 See also: Mortgage Points: Should You Buy Down Your Rate?
Calculator
Fill in the fields and click "Calculate" for instant results.
📰 Formula
• Cost of points = loan amount × (points ÷ 100) (1 point = 1% of the loan) • Rate with points = rate without points − (points × reduction per point) • Monthly P&I = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), with r = rate ÷ 1200 and n = years × 12 • Monthly savings = payment without points − payment with points • Break-even (months) = cost of points ÷ monthly savings • Lifetime savings (held to term) = monthly savings × n − cost of points
📰 Formula
• Cost of points = loan amount × (points ÷ 100) (1 point = 1% of the loan) • Rate with points = rate without points − (points × reduction per point) • Monthly P&I = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), with r = rate ÷ 1200 and n = years × 12 • Monthly savings = payment without points − payment with points • Break-even (months) = cost of points ÷ monthly savings • Lifetime savings (held to term) = monthly savings × n − cost of points
🧪 Worked examples
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Example 2
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Example 3
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Example 4
⚠️ Common mistakes
- Confusing discount points (which buy down the rate) with origination points (a lender fee that saves you nothing).
- Buying points when you'll sell or refinance before the break-even month, so you never recoup the cost.
- Assuming every point always cuts exactly 0.25% — confirm the actual rate your lender quotes with points.
- Treating points as equity like a down payment; points are a fee and don't reduce your loan balance or PMI.
💡 Tips
- Buy points only if you'll keep this exact loan past the break-even date — otherwise pocket the cash.
- Always compare the rate-with-points your lender actually quotes, not a generic 0.25% assumption.
- If you expect to refinance the moment rates drop, points are usually a losing bet — your savings window is too short.
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❓ Frequently asked questions
What is a mortgage point worth?
One discount point equals 1% of your loan amount, paid upfront at closing. On a $320,000 loan, one point costs $3,200. In return it typically lowers your interest rate by about 0.25%, though the exact reduction varies by lender.
How do I calculate the break-even on mortgage points?
Break-even months = cost of the points ÷ your monthly payment savings. If 2 points cost $6,400 and cut your payment by $104.06 a month, break-even is 6,400 ÷ 104.06 ≈ 61.5 months, about 5.1 years.
Are mortgage points worth it?
Points pay off only if you keep the loan past the break-even date. If you'll move or refinance before then, you lose money. For a long-term hold a 4–6 year break-even is usually fine; for a short stay, skip the points.
How much does one point lower my interest rate?
Roughly 0.25% per point is the common rule of thumb, but it isn't fixed — some lenders offer more or less, and the buy-down can shrink at lower rates. Always use the actual rate your lender quotes with points.
What's the difference between discount points and origination points?
Discount points buy down your interest rate and have a break-even, which is what this calculator measures. Origination points are simply a fee the lender charges to process your loan and give you nothing in return — they don't lower your rate.
Are mortgage points tax-deductible?
Discount points paid to buy down the rate on a primary-home purchase are often deductible in the year you pay them if you itemize, while points on a refinance usually must be deducted over the life of the loan. Tax rules change and depend on your situation, so confirm with a tax professional or IRS Publication 936.
Should I pay points or make a bigger down payment instead?
They do different jobs. Points lower your rate but are a fee — they don't build equity. A bigger down payment shrinks your loan, builds equity and can remove PMI. If you have limited cash and a short time horizon, a larger down payment or keeping the cash usually beats points.
Can I buy a fraction of a point?
Yes. Lenders routinely sell partial points — 0.5 or 1.75 points, for example. The cost still scales as loan amount × points ÷ 100, so half a point on a $320,000 loan costs $1,600.
Do points make sense if I plan to refinance soon?
Usually not. Points only repay through years of lower payments, so if you refinance before the break-even month you forfeit most of the cost. When you expect rates to fall and plan to refinance, it's generally better to keep your cash.