Mortgage Points Calculator
See what buying discount points costs, how much they reduce your payment, and how long you have to stay for the trade to pay off.
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What discount points actually buy
A discount point is a fee paid upfront to reduce your interest rate permanently. One point costs one percent of the loan amount, so on a 320,000 dollar mortgage a single point is 3,200 dollars. In exchange the rate falls, typically by a quarter of a percentage point per point, though the exact trade depends on the market and the lender.
The arithmetic is a straightforward break-even. On the figures here, buying one point takes the rate from 6.75 to 6.25 percent and the payment from 2,075.51 to 1,970.30 dollars, a saving of 105.22 dollars a month. Against a cost of 3,200 dollars, that is a break-even of 31 months. Stay longer than two and a half years and the points have paid for themselves; sell or refinance sooner and you have handed the lender money for nothing.
If you keep the loan for the full thirty years the trade is much better than the monthly saving suggests, because the lower rate applies to a declining balance for three decades. The lifetime interest difference here is 37,879 dollars against a cost of 3,200. That is the strongest case for points: they suit borrowers who will hold the loan to term and who have cash available that is not needed elsewhere.
The catch is that the money is gone immediately and cannot be recovered. Paying 3,200 dollars for points and then selling after two years is a straight loss, and refinancing later wipes out the benefit entirely. So the honest question is not whether points are good value in general, but whether you are confident you will still have this loan in three years' time.
How the break-even is calculated
Compare the two payments, then divide the cost of the points by the monthly saving to find how many months it takes to recover them.
| Symbol | Meaning |
|---|---|
Loan |
The mortgage amount, which the point cost is calculated on |
points% |
The number of points as a percentage: one point is 1 percent |
Payment without points |
The monthly payment at the higher rate |
Payment with points |
The monthly payment at the reduced rate |
The break-even assumes you keep the loan and the rate for the whole period. Selling the property or refinancing ends the benefit, which is why the horizon selector matters more than the break-even figure alone.
Worked example: one point on a 320,000 dollar loan
Buying the rate down from 6.75 to 6.25 percent on a 30-year loan, held for 10 years.
| Figure | Result |
|---|---|
| Loan amount | $320,000.00 |
| Cost of one point | $3,200.00 |
| Payment at 6.75% (no points) | $2,075.51 |
| Payment at 6.25% (one point) | $1,970.30 |
| Monthly saving | $105.22 |
| Annual saving | $1,262.63 |
| Break-even | 31 months |
| Saving over 10 years | $12,626.26 |
| Net saving after the cost | $9,426.26 |
| Interest saved over the full 30 years | $37,878.79 |
You pay 3,200 dollars now to save 105.22 dollars a month. The points are recovered after 31 months, and if you keep the loan for ten years you are 9,426 dollars ahead. Hold it for the full term and the interest saving reaches 37,879 dollars. The whole trade depends on staying put: sell in year two and you lose money.
Estimates only. Your lender's figures may differ because of fees, escrow and rounding.
Deciding whether to pay points
Compare the break-even with how long you will actually stay
Thirty-one months is the break-even here. If there is a realistic chance you move or refinance before then, the points are a guaranteed loss. Be honest about your horizon rather than optimistic, because the money is not refundable.
Ask what a partial point buys
The rate reduction is not always linear. Sometimes half a point buys most of the rate cut, and the second half buys very little. Ask the lender to quote the rate at each half-point so you can see where the value stops.
Consider the alternative use of the cash
3,200 dollars paid into points earns a guaranteed return equal to the rate reduction. The same 3,200 dollars paid against the principal earns the full mortgage rate. Compare the two: paying down principal is often the better use of a lump sum, and it keeps your options open.
Remember that refinancing destroys the benefit
Points only pay off if the loan survives. If rates fall and you refinance in three years, the entire cost is written off with nothing to show for it. If a refinance is plausible, take the higher rate and keep the cash.
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Frequently asked questions
Are mortgage points worth it?
Only if you keep the loan past the break-even point, which is the cost of the points divided by the monthly saving. On the example here that is 31 months. Stay longer and you profit; sell or refinance sooner and you lose the entire cost. There is no universally correct answer.
How much does one point reduce the interest rate?
Commonly about a quarter of a percentage point, though it varies with the market and the lender. The reduction is not guaranteed to be linear: sometimes a second point buys much less than the first. Always ask for the rate at each point level rather than assuming.
What is the difference between discount points and origination points?
Discount points buy a lower interest rate and benefit you over the life of the loan. Origination points are simply a fee the lender charges for making the loan, and they buy nothing. Both appear on the Loan Estimate, and it is worth checking which one you are being charged for.
Can points be financed into the loan?
On some loan programmes yes, but financing them means paying interest on the fee for the life of the loan, which reduces or eliminates the benefit. If you cannot pay the points in cash, taking the higher rate is usually the better choice.
Do points make sense if I plan to refinance later?
Generally no. Refinancing replaces the loan and the points are gone with nothing recovered. If a refinance is likely within a few years, keep the cash and take the higher rate, then revisit the decision when rates move.