Mortgage Points Calculator
Cost of Points
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New Interest Rate
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Monthly Payment (without)
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Monthly Payment (with points)
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Monthly Savings
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Break-Even (months)
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How Mortgage Points Work
Mortgage discount points are upfront fees paid directly to the lender at closing in exchange for a reduced interest rate on your home loan. According to the Consumer Financial Protection Bureau (CFPB), one discount point equals 1% of the loan amount and typically reduces the interest rate by 0.25 percentage points (25 basis points), though this can vary by lender and market conditions.
Points are essentially prepaid interest. By paying more upfront, you lower your monthly payment for the entire life of the loan. This makes points most valuable for borrowers who plan to stay in their home for many years. The decision to buy points comes down to a break-even analysis: how long does it take for the monthly savings to exceed the upfront cost? If you keep the mortgage past that break-even point, every month of savings is pure financial gain. You can use our mortgage calculator to compare monthly payments at different rates.
How the Break-Even Calculation Works
The break-even formula for mortgage points is straightforward but critical to the buying decision:
Break-Even (months) = Cost of Points / Monthly Payment Savings
- Cost of Points = Loan Amount x (Points / 100)
- Monthly Payment Savings = Payment without points - Payment with points
- New Rate = Original Rate - (Points x Rate Reduction per Point)
Worked example: On a $300,000 loan at 7.0%, buying 2 points costs $6,000 (2% of $300,000) and reduces the rate to 6.5%. Monthly payment without points: $1,996. Monthly payment with points: $1,896. Savings: $100/month. Break-even = $6,000 / $100 = 60 months (5 years). Total savings over 30 years: $100 x 360 months - $6,000 = $30,000. According to Freddie Mac, the average 30-year fixed rate in early 2026 was approximately 6.8%, making points calculations particularly relevant in the current rate environment.
Key Terms You Should Know
- Discount Points -- Fees paid to the lender to reduce your interest rate. One point = 1% of the loan amount. Also called "buying down the rate."
- Origination Points -- Separate fees charged for processing the loan. Unlike discount points, origination points do not reduce your rate and are not the same thing.
- Basis Points -- One hundredth of a percentage point. A rate drop from 7.00% to 6.75% is a 25 basis point reduction.
- Break-Even Period -- The number of months needed for cumulative monthly savings to equal the upfront cost of points. The shorter the break-even, the better the deal.
- Lender Credits -- The opposite of points: the lender gives you money at closing in exchange for a higher interest rate. Useful if you are short on cash at closing.
Mortgage Points: Cost and Savings Comparison
The value of buying points depends heavily on your loan amount, rate reduction, and how long you keep the mortgage. Here is how different point purchases compare on a $300,000 30-year fixed mortgage starting at 7.0%:
| Points Bought | Upfront Cost | New Rate | Monthly Savings | Break-Even | 30-Year Net Savings |
|---|---|---|---|---|---|
| 0 (no points) | $0 | 7.00% | - | - | - |
| 1 point | $3,000 | 6.75% | ~$51 | ~59 months | ~$15,360 |
| 2 points | $6,000 | 6.50% | ~$100 | ~60 months | ~$30,000 |
| 3 points | $9,000 | 6.25% | ~$149 | ~60 months | ~$44,640 |
Practical Examples
Example 1: Long-Term Homeowner. Lisa is buying a $400,000 home with 20% down, financing $320,000 at 7.0% for 30 years. She plans to live there for 15+ years. Buying 2 points costs $6,400, reduces her rate to 6.5%, and saves $107/month. Break-even is 60 months (5 years). Over 15 years, her net savings total $12,860 after recouping the points cost. Over 30 years, net savings exceed $32,000.
Example 2: Short-Term Stay. Mike is buying a starter home and expects to sell in 3-4 years. Buying points with a 60-month break-even means he would lose money since he sells before breaking even. He skips points and keeps extra cash for his down payment instead. Alternatively, he could take lender credits (negative points) to reduce closing costs.
Example 3: Refinance Scenario. David has a $250,000 refinance at 7.25%. Buying 1.5 points ($3,750) drops his rate to 6.875%, saving $62/month. Break-even is 60 months. However, since points on a refinance must be amortized over the loan term for tax deduction purposes (unlike a purchase), the after-tax break-even is slightly longer. He checks with his refinance calculator to model both scenarios.
Tips for Deciding Whether to Buy Points
- Compare break-even to your timeline. If you plan to stay in the home longer than the break-even period, points are generally a good investment. The average US homeowner stays in a home for 13 years according to the National Association of Realtors, well beyond most break-even periods.
- Consider the opportunity cost. The money spent on points could be invested elsewhere. If you can earn a higher return investing the same amount, skipping points may be smarter.
- Factor in the tax deduction. Points on a home purchase are generally fully deductible in the year paid, per IRS Publication 936. This effectively reduces the upfront cost. Points on a refinance must be amortized over the loan term.
- Negotiate before buying points. Ask the lender for their best rate without points first. Some lenders offer competitive base rates that make points less necessary.
- Do not stretch to buy more points. If buying points leaves you with insufficient cash reserves for moving costs, emergency funds, or home repairs, skip them. Financial security trumps rate optimization.
- Consider fractional points. You do not have to buy whole points. Half a point (0.5) or even a quarter point (0.25) can provide meaningful savings with a lower upfront cost and shorter break-even.
Frequently Asked Questions
What are mortgage discount points?
Mortgage discount points are upfront fees paid to the lender at closing to reduce your interest rate. One point costs 1% of the loan amount and typically reduces the rate by 0.25 percentage points (25 basis points). For example, on a $300,000 loan, one point costs $3,000 and might reduce your rate from 7.0% to 6.75%. The CFPB notes that the exact rate reduction per point varies by lender and market conditions, so always get quotes from multiple lenders before deciding.
How do I calculate the break-even period for mortgage points?
Divide the total cost of points by the monthly payment savings to find break-even in months. If 2 points cost $6,000 and save $100 per month, break-even is 60 months (5 years). You need to keep the mortgage at least this long to benefit from buying points. If you sell or refinance before break-even, you lose money on the points. Factor in your expected timeline in the home -- the average US homeowner stays approximately 13 years, making most point purchases worthwhile.
Are mortgage points tax deductible?
Yes, for a primary residence purchase, points are generally fully deductible in the year paid as itemized deductions under IRS rules. For a refinance, points must be amortized (deducted proportionally) over the life of the loan. For example, 2 points ($6,000) on a 30-year refinance would yield a $200 annual deduction. This tax benefit reduces the effective cost of points, shortening the true break-even period. Consult IRS Publication 936 or a tax professional for your specific situation.
When should I avoid buying mortgage points?
Avoid buying points if you plan to sell or refinance within 5 years, as you likely will not recoup the upfront cost. Also skip points if the cash would be better used for a larger down payment (which could eliminate PMI at 20% equity), emergency fund (3-6 months of expenses), or home repairs. If you are buying a starter home or your career may require relocation, the flexibility of keeping cash outweighs the rate savings.
What is the difference between discount points and origination points?
Discount points are optional fees you choose to pay to lower your interest rate -- they are a financial trade-off between upfront cost and long-term savings. Origination points (or origination fees) are charges by the lender for processing and underwriting the loan and do not reduce your rate. Origination fees typically range from 0.5% to 1% of the loan amount. When comparing loan offers, make sure you distinguish between these two types of points, as only discount points provide a rate reduction.