Mortgage Points Calculator
Determine how much your monthly payment drops when you buy discount points and calculate how long you must keep the loan to break even on the upfront cost. Use this before closing to decide whether points are worth purchasing.
About this calculator
A mortgage discount point costs 1% of the loan amount and typically reduces the interest rate by 0.25 percentage points per point purchased. The monthly payment at the base rate and at the reduced rate are each computed with the standard amortization formula: M = P × (r × (1+r)^n) / ((1+r)^n − 1), where r is the monthly rate and n = loanTerm × 12. The monthly savings equals the base-rate payment minus the reduced-rate payment. The cost of buying points equals points × 1% × loan amount. Dividing the upfront cost by the monthly savings gives the break-even month: break-even = (points × 0.01 × loanAmount) / (M_base − M_reduced). If you keep the loan past the break-even date, every subsequent month is net savings.
How to use
Loan amount $350,000, base rate 7.0%, 2 discount points purchased, 30-year term. Reduced rate = 7.0 − 2 × 0.25 = 6.5%. Base monthly payment M_base = 350,000 × (0.005833 × (1.005833)^360) / ((1.005833)^360 − 1) ≈ $2,329. Reduced payment M_reduced = 350,000 × (0.005417 × (1.005417)^360) / ((1.005417)^360 − 1) ≈ $2,212. Monthly savings = $2,329 − $2,212 = $117. Cost of 2 points = 2 × 0.01 × $350,000 = $7,000. Break-even = $7,000 ÷ $117 ≈ 60 months (5 years). Stay in the loan beyond 5 years and the points pay off.
Frequently asked questions
How do mortgage discount points reduce my interest rate and monthly payment?
Each discount point costs 1% of the loan amount and typically lowers the lender's quoted interest rate by 0.25%. Because your rate is lower, less interest accrues each month, so the fixed monthly payment calculated by the amortization formula is smaller. The reduction may seem modest month to month, but over a 30-year loan the cumulative interest savings can be substantial. The exact rate reduction per point varies by lender and market conditions, so always confirm the specific rate-buy-down offered before purchasing points.
When does it make financial sense to buy mortgage points?
Buying points makes sense when you plan to keep the loan — and stay in the home — long enough to pass the break-even point, typically calculated as upfront point cost divided by monthly payment savings. If your break-even is 5 years and you expect to stay 10+ years, points are a strong value. Conversely, if you might refinance or sell within a few years, you could pay thousands upfront and never recoup the cost. The calculator's break-even figure is the single most important number to evaluate before deciding.
Are mortgage points tax deductible and how does that affect the break-even calculation?
In many cases, yes — points paid on a purchase mortgage for a primary residence are generally deductible in the year paid for U.S. taxpayers who itemize deductions, effectively lowering the real upfront cost. For example, if you pay $7,000 in points and are in the 22% tax bracket, the after-tax cost is approximately $5,460. Dividing the lower after-tax cost by the same monthly savings shortens your break-even period meaningfully. Always consult a tax professional to confirm your specific eligibility, as rules differ for refinance points and second homes.