Discount points let you buy a lower mortgage interest rate upfront. This calculator helps you determine if paying points makes financial sense—or if you're better off keeping your cash and accepting a higher rate.
How This Calculator Works
This calculator analyzes the buy-down decision:
- Loan Amount: Your total mortgage amount
- Base Rate: The interest rate without buying points
- Points Purchased: Number of discount points (each = 1% of loan)
- Rate Reduction: How much each point reduces your rate
- Monthly Savings: Difference in monthly payments
- Break-Even: How long until savings exceed the upfront cost
The Formula Explained
Point Cost = Loan Amount × Number of Points × 0.01
Monthly Savings = Payment (No Points) - Payment (With Points)
Break-Even Months = Point Cost / Monthly Savings
Example: $5,000 in points saves $100/month = 50-month break-even.
Step-by-Step Example
$400,000 Mortgage Analysis
| Scenario | Rate | Monthly P&I | Points Cost |
| No Points | 7.00% | $2,661 | $0 |
| 1 Point | 6.75% | $2,594 | $4,000 |
| 2 Points | 6.50% | $2,528 | $8,000 |
| Points | Monthly Savings | Break-Even |
| 1 Point | $67/month | 60 months (5 years) |
| 2 Points | $133/month | 60 months (5 years) |
If staying 5+ years, points are worth it. Less than that, save your cash.
Frequently Asked Questions
What are mortgage discount points?
Discount points are upfront fees you pay to lower your interest rate. Each point equals 1% of your loan amount. One point on a $300,000 mortgage costs $3,000. Typically, each point reduces your rate by 0.125-0.25%. You're essentially prepaying interest for a lower rate.
How much does each point lower my rate?
The reduction varies by lender and market conditions, but typically each point lowers your rate by 0.125-0.25%. On a jumbo loan, the reduction may be smaller. Some lenders offer "flat" pricing (same reduction per point) while others use tiered pricing. Always get specific quotes.
Should I buy mortgage points?
It depends on your break-even timeline. If points cost $6,000 and save $100/month, break-even is 60 months (5 years). Planning to stay 10 years? Points save money. Moving in 3 years? Skip points. The decision is math, not emotion.
What's the break-even point for mortgage points?
Break-even is when cumulative monthly savings equals the upfront cost. Calculate: Point Cost ÷ Monthly Savings = Break-Even Months. If you'll stay beyond break-even, buy points. If not, keep your cash. Typical break-even periods are 4-7 years.
Can I deduct mortgage points on my taxes?
For purchase mortgages, points are typically deductible in the year paid (meeting certain IRS conditions). For refinances, points are usually deducted over the loan term. Consult a tax professional for your specific situation. Tax benefits reduce the effective cost of points.
How do points differ from origination fees?
Discount points reduce your interest rate—they're optional and benefit you. Origination fees (sometimes called "origination points") are lender charges for processing the loan—they don't reduce your rate. Watch loan estimates carefully to distinguish between the two.
When do points NOT make sense?
Skip points when: (1) You'll move/refinance before break-even, (2) You need cash for other purposes (emergency fund, down payment), (3) You're getting an adjustable-rate mortgage (may refinance before benefiting), (4) The rate reduction per point is smaller than average.
Are there negative points (lender credits)?
Yes—lender credits work in reverse. The lender pays your closing costs in exchange for a higher interest rate. This makes sense if you're short on closing costs or won't keep the mortgage long. Same break-even math applies, just inverted.
Key Points to Remember
- Calculate break-even first: Points only win if you stay long enough
- Compare carefully: Reduction per point varies by lender
- Consider opportunity cost: That cash could go elsewhere
- Tax benefits help: Deductibility reduces effective cost
- Get multiple quotes: Compare rates with and without points