Mortgage Points Break-Even Calculator
About Mortgage Points
Mortgage points (also called discount points) are fees paid upfront to reduce your interest rate. Each point typically costs 1% of the loan amount.
Formula: M = P[r(1+r)^n]/[(1+r)^n-1]
Where: M = Monthly payment, P = Principal, r = Monthly interest rate, n = Number of payments
Decision guide: Buy points if you plan to stay in the home longer than the break-even period.
Find out whether paying discount points for a lower mortgage rate pays off: the monthly payment at each rate, the monthly saving, how many months it takes to recover the cost of the points, and the net saving over the full loan term.
Formula
Worked Example
The payment falls from $2,594.39 to $2,528.27. Recovering $4,000 at $66.12 a month takes about five years, so the point is worth buying only if you expect to keep the loan, without selling or refinancing, longer than that.
Frequently Asked Questions
What is a mortgage point?
A fee of 1% of the loan amount paid at closing in exchange for a lower interest rate, often around 0.25 percentage points per point, though lenders price them differently. Compare offers by their APR and by the break-even time.
When are points not worth it?
When you are likely to sell or refinance before the break-even date. If rates may fall and you would refinance, the money spent on points is lost; putting the same cash toward the down payment or keeping it in reserve can be better.
Are mortgage points tax-deductible?
Points paid to buy your main home are generally deductible in the year you pay them if you itemize deductions. Points on a refinance are usually deducted gradually over the life of the loan. Most households take the standard deduction, which makes points a pure cost.