Mortgage Points Calculator

Mortgage discount points vs. lower interest rate is a break-even analysis: paying upfront points to permanently reduce your interest rate only makes financial sense if you keep the mortgage long enough to recover the upfront cost through lower monthly payments.

Cost of points: Point Cost = Loan Amount × (Points × 0.01) (Each point = 1% of loan amount)

Monthly payment formula: M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]

Where:

• P = principal (loan amount)
• r = monthly interest rate = annual rate ÷ 12
• n = number of payments (years × 12)

Monthly savings from lower rate: Monthly Savings = Payment (no points) − Payment (with points)

Break-even period: Months to Break Even = Point Cost ÷ Monthly Savings

Effective annual savings: Annual Savings = Monthly Savings × 12

When buying points makes sense:

• You plan to stay in the home longer than the break-even period
• Rates are high (greater potential savings per point)
• You have cash available at closing without depleting emergency funds

How much does a point actually buy?

The rule of thumb is 0.25% off the rate per point, but that is a rule of thumb and nothing more. In practice lenders quote anywhere from 0.125% to 0.375% per point, and the figure moves with the rate environment, the loan product and your credit profile. When rates are high, points tend to buy less. Ask your lender for their actual sheet, then enter that number below, because the whole answer swings on it.

Worked example: $400,000 30-year mortgage at 7.00%, buying 2 points, with the lender quoting 0.125% off per point.

• Points cost: $400,000 × 0.02 = $8,000 upfront
• Rate after points: 7.00% − 0.25% = 6.75%
• Monthly payment at 7.00%: $2,661.21
• Monthly payment at 6.75%: $2,594.39
• Monthly savings: $2,661.21 − $2,594.39 = $66.82/month
• Break-even: $8,000 ÷ $66.82 = 120 months, so 10.0 years

If you plan to stay in the home more than ten years, buying those 2 points is worthwhile. If you might refinance or move in five to seven years, the $8,000 is gone.

Now change one assumption. If the same lender quotes 0.25% per point instead, 2 points take the rate to 6.50%, the payment falls to $2,528.27, the monthly saving nearly doubles to $132.94, and break-even arrives at 61 months rather than 120. Same loan, same points, same money upfront, and the answer flips from “probably not” to “yes, comfortably”. That is why the reduction per point is an input on this page and not a constant.