Mortgage Points Calculator
Enter the loan, the rate without points and how many points you would buy. The calculator finds the month the lower payment repays the cost of the points.
Break-Even Point
61.2 months
Cost of Points
$3,000.00
Rate With Points
6.25%
Monthly Payment Without Points
$1,896.20
Monthly Payment With Points
$1,847.15
Monthly Savings
$49.05
Net Savings Over the Years Kept
$2,886.30
Verdict
The points pay for themselves before you expect to sell or refinance.
How it works
Discount points are prepaid interest: you pay the lender a percentage of the loan at closing and in return get a lower interest rate. One point costs 1% of the loan amount.
The calculator works out the principal-and-interest payment at both rates over the full term. The difference is what the points save each month. Dividing the cost of the points by that saving gives the break-even point: the number of months of lower payments it takes to recover what you paid up front.
Whether points are worth buying depends on how long you keep the loan. If you sell or refinance before the break-even month, the points cost more than they saved. The net savings figure is the monthly saving multiplied by the months you expect to keep the loan, minus the cost of the points.
How much a point lowers the rate is set by each lender and changes with the market. If you have a quote, choose "Rate quoted with the points" and enter it; otherwise the calculator applies a typical 0.25% per point, which you can change.
Formula
cost of points = loan × points ÷ 100 rate with points = rate − points × reduction per point (or the quoted rate) payment(r) = P × i × (1 + i)^n ÷ ((1 + i)^n − 1), i = r ÷ 12, n = years × 12 monthly savings = payment(rate) − payment(rate with points) break-even = cost of points ÷ monthly savings (months) net savings = monthly savings × years kept × 12 − cost of points
Example
A $300,000, 30-year loan at 6.5% has a payment of $1,896.20. Buying one point costs $3,000 and, at a typical 0.25% per point, lowers the rate to 6.25% and the payment to $1,847.15, saving $49.05 a month.
The points pay for themselves after 61.2 months, a little over five years. Keeping the loan for 10 years, the lower payments save $5,886.30, which is $2,886.30 more than the points cost.
Assumptions and limitations
- Both loans are fixed-rate, fully amortizing, with end-of-month payments over the same term. Adjustable-rate loans are not modelled.
- The 0.25% reduction per point is a typical figure, not a rule. The actual reduction depends on the lender, the loan and the market; use a lender's quote where you have one.
- Savings are counted as the simple difference in monthly payments. Money paid for points is not assumed to earn interest elsewhere, and the slightly faster principal paydown at the lower rate is not counted, so the break-even point is approximate.
- Taxes are ignored. Points may be deductible in some cases; that depends on your circumstances.
- Closing costs other than the points, mortgage insurance, property tax and homeowners insurance are not included.
- Results are an estimate for planning, for informational and educational purposes only, and are not financial, tax or legal advice.
Frequently asked questions
What is a lender credit?
It is the reverse of points: you accept a higher rate and the lender pays part of your closing costs. If you expect to sell or refinance soon, a credit can cost less over the time you hold the loan than paying points does.
Do I break even sooner on a bigger loan?
No. Points and monthly savings both scale with the loan amount, so the break-even month depends on the rates and the term, not the loan size. A bigger loan only makes the dollar figures larger.
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