Mortgage Points Break-Even Calculator
Determines how many months it takes for the interest savings from buying down your rate to recover the upfront cost of mortgage points. Use it when deciding whether to pay points at closing.
About this calculator
One mortgage point costs 1% of the loan amount and typically lowers the interest rate by 0.20–0.25% (the exact reduction per point is set by your lender). The upfront cost of points is: pointsCost = loanAmount × (pointsPurchased / 100). The monthly payment without points uses the base rate, while the payment with points uses the reduced rate: reducedRate = baseRate − (pointsPurchased × rateReduction). Both payments are computed with M = L × [r(1+r)³⁶⁰] / [(1+r)³⁶⁰ − 1]. Monthly savings = M_base − M_reduced. Break-even (months) = pointsCost / monthlySavings. If you keep the loan longer than the break-even period, buying points saves money overall.
How to use
Loan = $400,000, base rate = 7.0%, 1 point purchased, rate reduction = 0.25% per point. Points cost = $400,000 × 0.01 = $4,000. Reduced rate = 7.0% − 0.25% = 6.75%. M_base = $400,000 × [0.005833 × (1.005833)³⁶⁰] / [(1.005833)³⁶⁰ − 1] ≈ $2,661. M_reduced = $400,000 × [0.005625 × (1.005625)³⁶⁰] / [(1.005625)³⁶⁰ − 1] ≈ $2,594. Monthly savings = $67. Break-even = $4,000 / $67 ≈ 60 months (5 years). Stay longer than 5 years and the point pays off.
Frequently asked questions
How do mortgage points reduce my interest rate and monthly payment?
Each mortgage point you purchase equals 1% of your loan amount paid upfront at closing. In exchange, the lender permanently lowers your interest rate — typically by 0.20–0.25% per point, though this varies by lender and market conditions. The lower rate reduces the amortized monthly payment on the full 30-year term. The savings are modest each month but compound over many years, making points most valuable for borrowers who keep their loan for a long time.
When does buying mortgage discount points make financial sense?
Buying points makes financial sense when you plan to stay in the home — and keep the same mortgage — beyond the break-even period. If the break-even is 5 years and you expect to live there for 10+ years, points represent a strong return on investment. Conversely, if you plan to sell or refinance within a few years, the upfront cost is unlikely to be recovered. Points also make more sense when you have sufficient cash reserves after closing and won't need to finance those costs.
What is the difference between mortgage discount points and origination points?
Discount points are prepaid interest that permanently buys down your interest rate — the focus of this calculator. Origination points are fees the lender charges to process your loan; they do not reduce your rate. Both are paid at closing and expressed as a percentage of the loan amount, which causes frequent confusion. When comparing loan offers, ask lenders to separate discount points from origination fees so you can accurately calculate whether the rate reduction justifies the additional closing cost.