Mortgage Points Calculator

Paying discount points is one of the few mortgage decisions where you trade cash today for a lower payment every month for decades - so the math has to work for your specific situation. On a $320,000 loan, buying 2 points costs $6,400 upfront and might drop your rate from 6.75% to 6.25%. That lowers the monthly principal-and-interest payment by roughly $107, which means it takes about 60 months - five years - to break even. Stay in the home longer and the points save you real money; sell or refinance before then and you've effectively thrown the $6,400 away. This mortgage points calculator runs that comparison instantly so you can decide before closing.

What a discount point actually is

A discount point (also called a "mortgage point") is prepaid interest. You pay your lender a fee at closing and, in return, they lower your interest rate for the life of the loan. The pricing convention is simple: one point equals 1% of the loan amount. So on a $320,000 loan, one point is $3,200, two points are $6,400, and half a point is $1,600. The rate reduction you receive per point is not fixed by law - a common rule of thumb is about 0.25% per point, but lenders price it differently day to day, so always use the figure on your Loan Estimate.

The break-even formula

The whole decision comes down to one calculation - how long it takes the monthly savings to repay what you spent on the points:

The cost of points is loan × (points ÷ 100). The monthly savings is the difference between the principal-and-interest payment at your base rate and at the bought-down rate, each computed with the standard amortization formula M = P × r × (1 + r)n ÷ ((1 + r)n − 1), where P is the loan, r is the monthly rate, and n is the number of payments. If you expect to keep the loan past the break-even month, the points pay off.

A worked example, step by step

Take the default scenario: a $320,000 loan, a 6.75% base rate, a 30-year term, and 2 points that each cut the rate by 0.25%.

1. Cost of points: $320,000 × 2% = $6,400.
2. New rate: 6.75% − (2 × 0.25%) = 6.25%.
3. Payment without points: about $2,076/month in principal and interest.
4. Payment with points: about $1,970/month.
5. Monthly savings: roughly $107.
6. Break-even: $6,400 ÷ $107 ≈ 60 months (5 years).

Over the full 30 years, those points save tens of thousands in interest - but only if you actually keep the loan that long. The calculator's "net lifetime savings" figure subtracts the $6,400 upfront cost from the interest saved so you see the true net benefit, not just the headline interest reduction.

How to use this calculator

You need five numbers, all of which appear on a lender's Loan Estimate:

1. Loan amount: the amount you are borrowing (home price minus down payment), not the home price.
2. Base rate: the interest rate you'd get without buying any points.
3. Loan term: 30, 20, 15 or 10 years - the same term applies to both scenarios.
4. Discount points: how many points you are considering. Use the quick-pick chips or type a custom value like 0.75.
5. Rate reduction per point: the rate drop each point buys. Leave it at 0.25% as a default, or enter your lender's actual quote.

Press Calculate points and read the break-even month at the top, then the cost-and-savings cards and the side-by-side table showing both scenarios.

Who should use it

• Buyers comparing Loan Estimates where one lender quotes a lower rate "with points" - this shows whether that rate is really cheaper.
• Long-term owners who plan to stay put well past the break-even and want to lock in a lower payment.
• Refinancers deciding whether to pay points on a new loan.
• Anyone with extra cash at closing weighing points against a bigger down payment or keeping the money in reserve.
• Builders' or sellers' incentive shoppers checking whether a "rate buy-down" credit is actually worth taking.

Key terms explained

• Discount point: an optional upfront fee (1% of the loan each) that lowers your rate.
• Origination point/fee: a lender charge to process the loan; it does not lower your rate and is not modeled here.
• Break-even point: the month at which accumulated monthly savings equal the upfront point cost.
• Buy-down: the act of paying points to reduce the rate; a "permanent buy-down" lasts the whole term.
• Lender credit (negative points): the reverse - the lender pays toward your closing costs in exchange for a higher rate.
• Net lifetime savings: total interest saved over the term minus the upfront cost of the points.

Three scenarios that change the answer

Whether points are smart depends almost entirely on your timeline and how aggressively the lender prices the buy-down:

• You stay 10+ years: a 5-year break-even is easily cleared, and the lower rate compounds into large interest savings. Points usually win.
• You move in 3 years: you sell before recouping the $6,400, so you'd lose money - skip the points and keep the cash.
• Weak buy-down (0.125% per point): if a lender only shaves the rate a little per point, the monthly savings shrink, the break-even stretches past 10 years, and points rarely make sense. Always compare the actual reduction quoted.

What changes the result the most

• How long you keep the loan: the single biggest factor - everything hinges on staying past break-even.
• Rate reduction per point: a generous buy-down shortens the break-even sharply; a stingy one can make points pointless.
• Loan amount: a larger loan means larger dollar savings per month, which can shorten the payback even though the point cost rises too.
• Number of points: more points cost more upfront but lower the rate further - the break-even is roughly stable when the reduction is linear, but lenders often offer worse rates beyond the first point or two.
• Term length: on shorter terms the rate matters less in total dollars, so points typically take longer to justify.

Tips for deciding

• Compare like for like. Ask each lender to quote the same rate "with points" and "without," then run both through the calculator.
• Mind your reserves. Don't drain your emergency fund or shrink your down payment below 20% (which can trigger PMI) just to pay points.
• Match points to your horizon. The longer and more certainly you'll keep the loan, the more points make sense.
• Check the deduction. Points on a primary residence may be tax-deductible, which can effectively shorten the break-even - confirm with current IRS guidance.
• Consider the alternative. Sometimes putting the same cash toward principal or a larger down payment beats buying points; test both.

Limitations and assumptions

• It assumes a linear rate reduction per point; real lender pricing is often nonlinear, especially beyond one or two points.
• It compares only principal and interest - it excludes taxes, insurance, PMI and HOA, which points do not change.
• The simple break-even ignores the time value of money and any return you'd earn by investing the point cost instead.
• It does not model origination fees, lender credits, or the tax deduction for points.
• "Net lifetime savings" assumes you keep the loan the entire term; refinancing or selling early changes the outcome.

How it compares to related calculators

This page answers "should I buy points to lower my rate?" Sister tools cover the rest of the decision:

• For your full monthly payment with taxes, insurance and PMI, use the Mortgage Calculator.
• To decide whether refinancing (with or without points) saves money, use the Refinance Calculator.
• To see a payment-by-payment schedule at your chosen rate, use the Amortization Calculator.
• To weigh points against a larger down payment, use the Down Payment Calculator.
• To find your maximum price first, use the Home Affordability Calculator.

Sources

• Consumer Financial Protection Bureau (CFPB) - What are (discount) points and lender credits and how do they work?
• Consumer Financial Protection Bureau (CFPB) - Owning a Home: comparing loan offers and the Loan Estimate.