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Mortgage Points Calculator

Should you pay points to lower your rate? Find out here.

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What are Points?

Discount Points are upfront interest prepaid at closing to permanently lower your interest rate.

  • 1 Point = 1% of Loan Amount
  • Impact: Typically lowers rate by 0.25% (varies by lender)
  • Tax Deductible? Often yes, in the year paid (check with tax pro)
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The Break-Even Point Explained

The break-even point is the most critical metric when deciding whether to buy mortgage points. It represents the moment when the accumulated monthly savings from the lower interest rate exactly equal the upfront cost of the points.

If you plan to stay in the home (and keep the mortgage) longer than the break-even period, buying points saves you money. If you plan to sell or refinance before the break-even point, you lose money on the deal.

Simple Formula: Break-Even Months = Cost of Points ÷ Monthly Payment Savings

Example Scenario: Determining Value

Let's say you're taking out a $300,000 mortgage:

Option Interest Rate Monthly P&I Upfront Cost
Standard 7.00% $1,996 $0
With 1 Point 6.75% $1,946 $3,000
The Math:
  • Monthly Savings: $1,996 - $1,946 = $50/month
  • Break-Even: $3,000 cost ÷ $50 savings = 60 months (5 years)

Verdict: If you stay in the home for more than 5 years, buying the point is a good investment. If you sell in year 3, you wasted money.

When Should You Buy Points?

Buy Points If...
  • You plan to stay in the home for a long time (past break-even).
  • You have plenty of cash reserves after closing costs.
  • You want the lowest possible monthly payment.
  • You expect interest rates to rise or stay flat (less likely to refinance).
Don't Buy Points If...
  • You plan to move or refinance within a few years.
  • You are short on cash for the down payment or emergency fund.
  • You expect interest rates to drop significantly (you'd likely refinance anyway).
  • The break-even period is unreasonably long (e.g., > 7-8 years).

Frequently Asked Questions

Generally, yes. Discount points paid on a mortgage for your main home are essentially prepaid interest and can often be deducted in full in the year you pay them, provided you itemize deductions. However, points paid on a refinance usually must be deducted over the life of the loan. Consult a tax professional.

Lenders typically allow borrowers to buy up to 3 or 4 points, but federal and state laws (like Qualified Mortgage rules) cap the total points and fees a lender can charge (usually around 3% of the loan amount).

Yes. Because points are a cost of borrowing, buying points increases your Annual Percentage Rate (APR) even though it lowers your interest rate. The APR reflects the total cost of the loan including fees. Wait, that sounded confusing? Actually, buying points lowers your INTEREST RATE, and the APR will also reflect that lower cost over time, but the upfront fee is factored in.