Mortgage Points Calculator

What Are Mortgage Points?

Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. One point typically costs 1% of your total loan amount and usually reduces your interest rate by 0.25%. This is essentially prepaid interest that can save you money over the life of your loan.

For example, on a $300,000 loan, one point would cost $3,000 upfront. If this reduces your rate from 6.5% to 6.25%, you'll save money on every monthly payment for the entire loan term.

When Do Points Make Sense?

Whether buying points makes financial sense depends on several factors:

• How long you plan to stay: The longer you keep the mortgage, the more you benefit from the lower rate
• Available cash: You need sufficient funds at closing without depleting your emergency savings
• Alternative investments: Consider if investing the money elsewhere might yield better returns
• Tax implications: Points may be tax-deductible in the year paid (consult a tax professional)
• Break-even timeline: Generally, if you'll keep the loan longer than the break-even period, points can be beneficial

Understanding the Break-Even Analysis

Our calculator shows you the exact month when your cumulative savings from lower monthly payments equal the upfront cost of buying points. This is your break-even point. After this point, you're saving money compared to not buying points.

The analysis considers:

• Upfront cost: Total amount paid for points at closing
• Monthly savings: Reduction in monthly payment due to lower interest rate
• Cumulative savings: Total savings accumulated over time
• Net benefit: Cumulative savings minus upfront cost

How to Use This Calculator

1. Enter your loan amount: The principal amount you're borrowing
2. Input the base interest rate: The rate offered without buying points
3. Specify points to buy: How many points you're considering (can be fractional)
4. Rate reduction per point: How much each point reduces your rate (typically 0.25%)
5. Cost per point: Usually 1% of loan amount, but can vary
6. Set your analysis timeframe: How long you plan to keep the mortgage

Pro tip: If your break-even point is longer than you plan to keep the mortgage, points likely aren't worth it. Consider your long-term plans carefully.