About the Mortgage Points Calculator
The Mortgage Points Calculator answers a question nearly every borrower faces at the rate-lock stage: should you pay points to buy down your rate? Discount points are prepaid interest — you hand the lender cash at closing (1 point = 1% of the loan amount) and in exchange your rate drops, typically by about 0.25% per point. That trade is neither automatically good nor bad. It's a break-even problem: the points pay for themselves only if you keep the loan long enough for the monthly savings to repay the upfront cost. This tool shows the cost of the buydown, your reduced rate, both monthly payments (calculated with the same amortization math as our Mortgage Calculator), and the exact break-even month.
Formula Used
The payment at each rate uses the standard fixed-rate amortization formula:
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Where:
M = monthly payment
P = loan amount
r = monthly interest rate (annual rate ÷ 12 ÷ 100)
n = number of payments (years × 12)
The buydown itself is then three simple steps:
Cost of points = Loan × Points × Cost per point (%)
Reduced rate = Base rate − (Points × Reduction per point)
Break-even (months) = Cost of points ÷ Monthly savings
Worked Example
Say you're borrowing $400,000 over 30 years at a quoted 6.5%, and the lender offers 2 points (at the standard 1% each) that each cut the rate by 0.25% — taking you to 6.0%:
Cost of points = $400,000 × 2 × 1% = $8,000
Payment at 6.5% ($400k, 30yr) ≈ $2,528.27 / mo
Payment at 6.0% ($400k, 30yr) ≈ $2,398.20 / mo
Monthly savings = 2,528.27 − 2,398.20 = $130.07
Break-even = $8,000 ÷ $130.07 ≈ 62 months (~5 yrs 2 mo)
Lifetime interest saved (full 30 years) ≈ $46,825
Net savings after the $8,000 cost ≈ $38,825
Keep this loan past roughly the five-year mark and the points win — by almost $39,000 if you go the full 30 years. Sell or refinance before month 62, though, and you'd have been better off keeping the $8,000.
When Buying Points Makes Sense
- You'll keep the loan well past break-even. This is the whole game. Points are a bet on staying put — with typical pricing the break-even lands around 4–7 years, and the average homeowner refinances or moves more often than they expect.
- You have spare cash after the down payment and reserves. Points compete with your emergency fund and with a bigger down payment. If a larger down payment would push you past 20% and remove PMI, that usually beats buying points.
- Rates are unlikely to fall soon. If rates drop and you refinance in two years, the unused portion of the buydown is money gone. Many borrowers in high-rate periods skip points precisely because they expect to refinance — run that scenario in the Refinance Calculator.
- The point pricing is actually good. Lenders price points differently. A point that buys 0.375% off is a far better deal than one that buys 0.125%. Get the exact rate/point combinations from each Loan Estimate and compare them here.
Break-Even at Different Point Prices
Using the same $400,000, 30-year loan at a base rate of 6.5%, here's how the deal changes with how much rate each point actually buys:
| Buydown Offer (1 point = $4,000) | Monthly Savings | Break-Even |
|---|
| 1 pt buys 0.125% (6.5% → 6.375%) | ~$33 | ~122 months |
| 1 pt buys 0.25% (6.5% → 6.25%) | ~$65 | ~62 months |
| 1 pt buys 0.375% (6.5% → 6.125%) | ~$98 | ~41 months |
Rule of thumb hiding in that table: the more rate a point buys, the faster it pays off. Below about 0.2% per point, the break-even often stretches past the life of the average loan.
Discount Points vs. Origination Points vs. Temporary Buydowns
Three things get called "points" or "buydowns," and only one belongs in this calculator. Discount points are optional prepaid interest that permanently lower your rate — that's what this tool models. Origination points are lender processing fees dressed up in the same unit; they buy you nothing and should be compared across lenders like any other fee. Temporary buydowns (like the 2-1 buydown common in builder promotions) lower the payment only for the first year or two before the full note rate kicks in — a different product entirely, usually funded by a seller credit rather than your cash.
Common Mistakes
- Comparing loans by rate alone. A 6.25% loan with 2 points is not automatically better than 6.5% with none — the lower rate was purchased. Compare the all-in cost over the years you'll realistically keep the loan.
- Financing the points into the loan. Rolling the cost into the balance means you pay interest on the buydown itself, which stretches the true break-even well past what the simple division shows.
- Ignoring what else the cash could do. $8,000 in an index fund, a rainy-day fund, or extra principal has value too. The buydown must beat the alternatives, not just break even.
- Forgetting the tax angle. Discount points on a home purchase are generally deductible as mortgage interest if you itemize, which effectively discounts their cost — see the FAQ below.
Disclaimer
This tool provides general estimates for informational purposes only and is not financial or tax advice. Actual point pricing, rate reductions, and closing costs come from your lender's Loan Estimate and vary daily with the market; the principal-and-interest payments shown exclude taxes, insurance, and PMI. Confirm all figures with your lender, and see our Home Affordability Calculator to make sure the home fits your budget before optimizing the rate — or the 15 vs. 30-Year Mortgage guide if you're still choosing a term.
Frequently Asked Questions
What are mortgage discount points?Discount points are an upfront fee you pay your lender at closing in exchange for a permanently lower interest rate — often called "buying down the rate." One point costs 1% of your loan amount ($4,000 on a $400,000 loan) and typically lowers the rate by about 0.25%, though the exact reduction varies by lender and market. You can usually buy fractions of a point, such as 0.5 or 1.375 points.
How much does one mortgage point lower your interest rate?There is no fixed rule, but roughly 0.25% per point is the common benchmark — so paying 1% of the loan upfront might cut a 6.5% rate to 6.25%. In some markets lenders offer more or less than 0.25% per point, and the reduction is rarely linear as you stack more points. Always price the exact point/rate combinations from your Loan Estimate, and enter your lender's actual numbers in this calculator.
How is the break-even point on mortgage points calculated?Divide the total cost of the points by your monthly payment savings. If 2 points cost $8,000 and lower your payment by about $130 per month, you break even in roughly 62 months — a little over five years. If you keep the loan longer than that, the points save you money; if you sell or refinance sooner, you lose part of what you paid.
Are mortgage points worth it?Points pay off when you keep the same loan well past the break-even month. They tend to make sense for buyers staying long-term with cash to spare after the down payment and reserves. They tend not to make sense if you might move or refinance within a few years, if paying points would drain your emergency fund, or if the same cash used as a bigger down payment would remove PMI.
What is the difference between discount points and origination points?Discount points buy a lower interest rate — they are optional prepaid interest. Origination points (or origination fees) are what the lender charges to process the loan and do not lower your rate at all. Both may appear as "points" on a quote, so check your Loan Estimate carefully: only discount points reduce your rate, and only they belong in this calculator.
Are mortgage points tax-deductible?Often, yes. The IRS treats discount points as prepaid mortgage interest, so points paid on a purchase of your main home are generally deductible — sometimes fully in the year paid if requirements are met, otherwise spread over the loan's life. Points on a refinance are usually deducted over the loan term. You must itemize to benefit, so consult a tax professional for your situation.
What is the difference between buying points and a temporary buydown like a 2-1?Buying discount points lowers your rate permanently for the life of the loan. A temporary buydown, such as a 2-1 buydown, lowers the payment for only the first years (2% lower in year one, 1% in year two), after which the full note rate applies. This calculator models permanent points; temporary buydowns are a different product, often funded by a seller or builder credit.
Can I negotiate mortgage points or use seller credits to pay them?Yes. Point pricing varies by lender, so comparing Loan Estimates is the easiest negotiation. Seller concessions or builder credits can also be applied to points at closing — which changes the math entirely: if someone else pays for the buydown, your break-even is immediate and the lower rate is pure savings. Enter a cost per point of 0 in this calculator to model that case.