Mortgage points calculator

How this calculator works

This calculator compares mortgage principal-and-interest payments with and without discount points. Discount points are modeled as an upfront cost equal to a percentage of the loan amount—typically 1% of the loan per point—paid at closing in exchange for a lower interest rate.

The no-points scenario uses your entered base rate. The with-points scenario adds the point cost upfront and applies the reduced rate you enter. Monthly savings equal the payment difference. Break-even time is the point cost divided by monthly savings—the number of months required for payment savings to recover the upfront charge.

This model focuses on principal and interest only. Property taxes, insurance, PMI, and HOA fees are excluded. Opportunity cost of cash used for points, tax deductibility of mortgage interest, and plans to sell or refinance are not included. Use actual side-by-side lender quotes rather than rules of thumb about how much one point lowers the rate.

What affects the result

Whether points pay off depends on upfront cost, rate reduction, loan size, and how long you keep the loan.

• Number of points and loan amount — One point on a $350,000 loan costs $3,500; on a $200,000 loan, one point costs $2,000. The same rate reduction produces different break-even timelines.
• Rate reduction per point — Lenders do not offer a fixed reduction. One point might lower the rate by 0.125% or 0.375% depending on market conditions and loan profile. Enter the exact paired quotes.
• Loan term — Break-even uses monthly P&I savings. A larger rate reduction on a shorter term produces bigger monthly savings and faster break-even.
• Expected holding period — Points favor borrowers who keep the mortgage well past break-even. Selling, refinancing, or paying off early can prevent recovery of the upfront cost.
• Tax treatment — Points may be deductible in the year paid for a primary residence purchase under certain conditions, or amortized over the loan term in other cases. Tax benefit reduces effective cost but varies by situation.
• Opportunity cost — Cash spent on points cannot be invested elsewhere or applied to a larger down payment to avoid PMI.

Break-even is a necessary but not sufficient test. Full-term savings only materialize if the loan survives long enough.

Real-world examples

1. One point, moderate break-even. One point on a $350,000 loan costs $3,500. If the lower rate saves $58 per month in principal and interest, simple break-even is about 61 months—just over 5 years. Staying 7+ years may justify the points; moving in 3 years likely does not.

2. Two points on a smaller loan. Two points (2%) on a $250,000 loan cost $5,000. A 0.50% rate reduction might save $72 per month, implying break-even around 69 months. The upfront cash requirement is substantial relative to closing funds.

3. Points vs. larger down payment. $3,500 in points vs. $3,500 added to down payment on a $350,000 purchase may avoid PMI or reduce the loan amount. Compare using the PMI calculator and closing costs calculator, not points alone.

4. Refinance context. Paying points on a refinance has a shorter effective horizon if you refinance again in 4 years. Use the refinance break-even calculator when the goal is lowering an existing mortgage rate rather than a purchase.

Common mistakes

• Comparing rates without comparing APR and total fees. Points lower the rate but raise upfront cost. APR helps standardize comparison across offers.
• Assuming one point always reduces the rate by the same amount. Market pricing varies daily and by borrower profile.
• Ignoring plans to sell or refinance. Break-even beyond your expected tenure means points were likely wasted money.
• Treating full-term savings as guaranteed. Life events, rate drops, and job relocations frequently shorten actual loan tenure.
• Forgetting points in cash-to-close math. Points add to closing cash need alongside down payment and prepaids.
• Buying points to afford the payment without checking total cost. A lower rate helps, but stretching term or buying down rate with cash you need for reserves can create other risks.

When to use this calculator

Use this calculator when a lender presents paired quotes—with and without points—and you want to estimate break-even time before committing cash at closing.

It fits primary residence purchases and refinances where you have a reasonable estimate of how long you will keep the loan. Enter exact rate and point combinations from the Loan Estimate. Combine with the loan payment calculator for full payment context, the closing costs calculator for total cash needed, and the refinance break-even calculator when replacing an existing mortgage.

If you expect to move within a few years, points rarely pay off.

Related calculators

Estimate full mortgage principal and interest using the loan payment calculator. Compare refinance savings and break-even with the refinance break-even calculator. Include points in total cash needed at closing with the closing costs calculator.