How this calculator works
Discount points are modeled as a percentage of the loan amount paid upfront. The calculator compares principal-and-interest payments at the quoted rate without points and the lower rate with points. Break-even is point cost divided by monthly savings.
The holding-period question
Points are more likely to pay off when the mortgage remains in place beyond break-even. Selling, refinancing, or paying off the loan beforehand can prevent the lower payment from recovering its upfront cost.
Real-world example
One point on a $350,000 loan costs $3,500. If the lower rate saves $58 per month, simple break-even is about 61 months. Opportunity cost and taxes are not included.
Common mistakes
- Comparing rates without comparing APR and fees.
- Assuming one point always reduces the rate by the same amount.
- Ignoring plans to sell or refinance.
- Treating full-term savings as guaranteed.
When to use this calculator
Use it with actual side-by-side lender quotes. Enter the precise rate and point combinations instead of relying on a rule of thumb.
FAQ
What is one mortgage point?
One point is generally an upfront charge equal to 1% of the loan amount.
How much does one point lower the rate?
There is no fixed reduction. Use the exact paired quotes supplied by the lender.
What is the break-even point?
It is the time required for cumulative monthly savings to recover the upfront point cost.