Mortgage Points Calculator
A discount point costs 1% of the loan and buys a lower rate for as long as the loan lasts, so it pays for itself only once the smaller payments have repaid the cheque you wrote at closing. That moment is the break-even, and this works it out from the annuity formula alongside the monthly saving and the lifetime interest with and without the points. It then asks the question rate sheets never do — how long you actually expect to keep this loan — because points that break even in five years are worthless to someone who moves in three.
- Accurate
- Real-time
- Easy to use
- 100% free
Time to break even
5 years 2 months
Cost of the points, paid at closing
$4,000
Details
Updates as you typeThe par rate your lender quotes with zero points — the one to beat.
Read it off two quotes: the par rate minus the rate at one point.
One point costs 1% of the loan amount, paid at closing.
The amount borrowed, not the purchase price. Points are charged on this.
Until you sell or refinance — not the term. Most loans end early.
Summary
Held comfortably past break-evenTime to break even
5 years 2 months
Total cost of the bought-down loan
$890,633
- Principal$400,00045%
- Interest at the bought-down rate$486,63355%
- Cost of the points$4,0000%
- Monthly saving
- $65.40
- Cost of the points, paid at closing
- $4,000
- Rate you actually pay
- 6.250%
- Payment with no points
- $2,528.27
- Payment with points
- $2,462.87
- Lifetime interest with no points
- $510,178
- Lifetime interest with points
- $486,633
- Lifetime interest saved
- $23,545
- Net position if you leave after 9 years
- $5,016
- The points repay themselves after 62 months, and you expect to hold the loan 46 months longer than that. By the time you leave you are about $5,016 ahead, counting both the smaller payments and the slightly smaller balance the cheaper loan leaves behind.
- The $23,545 of lifetime interest saved is the figure a rate sheet advertises, and it only arrives if you keep this loan all 30 years. Sell or refinance earlier and you get the part you stayed for and nothing more.
- Break-even here is undiscounted: the cost is paid today while the saving arrives a month at a time, and a strict comparison would discount those future dollars. At a 4% opportunity cost a five-year break-even lands roughly half a year later. Tax is not modelled either — points on a main-home purchase are often deductible in the year paid.
How this is calculated
- Loan amount
- $400,000
- Points bought
- 1.000
- Cost = points ÷ 100 × loan
- $4,000
- Rate with no points
- 6.500%
- Rate paid = par − points × cut per point
- 6.250%
- Payments over the term
- 360
- Payment M = P·i ÷ (1 − (1+i)⁻ⁿ), no points
- $2,528.27
- Same formula at the bought-down rate
- $2,462.87
- Monthly saving = difference
- $65.40
- Break-even = cost ÷ monthly saving, rounded up
- 5 years 2 months
- Months you expect to hold the loan
- 108
- Payments saved by the day you leave
- $7,064
- Less balance owed, cheaper loan pays down faster
- $1,952
- Less the cost of the points
- -$4,000
- Net position when you leave
- $5,016
Months
Compare scenarios
See how one change moves the result
- CurrentYour inputs as they stand5 years 2 monthsCurrent
- Rate with no points% 8.1254 years 10 months
- Rate cut per point% per point 0.34 years 4 months
For informational purposes only. This is not financial advice — confirm major decisions with a licensed advisor.
Frequently asked questions
How do you calculate the break-even point on mortgage points?
Divide what the points cost by the monthly saving they buy, then round up to the next whole payment. On a $400,000 loan, one point costs $4,000 and a quarter-point rate cut takes the payment from about $2,528 to about $2,463 — a saving near $65 a month, so $4,000 ÷ $65 is roughly 61.2 payments and you are ahead from month 62. Both payments come from the standard annuity formula M = P·i ÷ (1 − (1+i)⁻ⁿ), which is the same one your lender uses.
Why is the break-even month only half the answer?
Because it tells you when the deal turns positive, not whether you will still be there. A point buys a rate, and the rate dies with the loan: sell the house, refinance, or pay the balance off and every dollar you had not yet recovered is simply gone. Most mortgages end years before their term — people move, rates fall, circumstances change — so a five-year break-even is a genuine bargain for someone staying fifteen years and a straightforward loss for someone staying three. That is why this page asks how long you expect to keep the loan and gives a verdict rather than a bare number.
Does this calculator discount the future saving back to today?
No, and that is a deliberate choice worth stating. The cost is paid in today’s money while the saving arrives one payment at a time over years, so a strict comparison would discount those future dollars at whatever your cash could otherwise earn. The undiscounted break-even reported here is the figure every rate sheet and every lender quotes, which makes it comparable with what you are shown elsewhere. It is also mildly optimistic: at a 4% opportunity cost a five-year break-even lands roughly half a year later, and the longer the recovery takes the wider that gap grows.
How much does one point lower the interest rate?
Commonly about a quarter of a percentage point, but it is a convention rather than a rule, and rate sheets bend — the first point often buys more than the third, and the ratio moves with the market and with your credit profile. That is why the cut per point is an input here instead of a constant. Read it straight off two real quotes: the rate at zero points minus the rate at one point. If a lender will not show you the par rate, you cannot price the points at all.
Are discount points tax deductible?
Points paid to buy down the rate on a purchase of your main home are generally deductible in the year you pay them if you itemise and meet the IRS conditions; points on a refinance normally have to be spread across the life of the loan instead. That shortens the real break-even for anyone who itemises, while the mortgage interest the points save is itself deductible, which lengthens it. Neither effect is modelled here, and the two pull in opposite directions, so check your own position with a tax adviser rather than assuming they cancel.
Is it better to buy points or put the money into the down payment?
Usually the down payment, if the extra cash would take you over a threshold. Crossing 20% equity removes mortgage insurance outright, which is often a larger monthly saving than a quarter-point rate cut and does not have to be earned back over five years. Points are worth considering once the deposit is settled, the emergency fund is intact, and you are confident this loan will still be yours in a decade.