Financial Math

Mortgage Points Calculator | Discount Points Break-Even Analysis

Determine whether buying mortgage discount points makes financial sense. Compare up to four scenarios (0, 0.5, 1, 2 points) with monthly payment reduction, total interest savings, and exact break-even month. Includes a sell-before-break-even analysis.

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Loan Amount ($)

Base Interest Rate (%)

Rate with 0 points

Loan Term (years)

Rate Reduction per Point (%)

Typical: 0.25% per point

Cost per Point (% of loan)

1 point = 1% of loan amount

Plan to Sell / Refinance (yrs)

Median US home tenure: 7–8 yrs

What Is the Mortgage Points Calculator | Discount Points Break-Even Analysis?

Mortgage discount points are prepaid interest — you pay money upfront to permanently lower your interest rate for the life of the loan. Whether that trade-off makes financial sense depends almost entirely on one question: how long do you plan to keep this mortgage?

›One point costs 1% of the loan amount. On a $400,000 loan, 1 point = $4,000 upfront. The rate reduction varies by lender and market conditions — typically 0.125%–0.25% per point.
›Break-even is the only metric that matters. If you sell or refinance before reaching break-even, you lose money on the points. If you stay past break-even, every additional month saves you money.
›The median US homeowner moves or refinances in 7–8 years. Most 30-year mortgages are paid off, sold, or refinanced well before maturity — which is why points rarely pay off for the average borrower.
›Points are tax-deductible on a primary residence purchase. On a purchase (not a refinance), the full point cost is deductible in year one, which can reduce the effective cost and improve break-even timing.

Formula

Monthly Payment

M = P × r(1+r)ⁿ / ((1+r)ⁿ − 1) where r = annual rate / 1200

Point Cost

Cost = Points × (Cost% per point / 100) × Loan Amount

1 point = 1% of loan amount; typically reduces rate by 0.125%–0.25%

Break-Even

Break-Even Months = Point Cost / Monthly Savings

Monthly Savings = M(0 points) − M(n points)

Net Lifetime Savings

Net = (Total Interest with 0 pts) − (Total Interest with n pts) − Point Cost

How to Use

1
Enter loan amount, base interest rate (at 0 points), and loan term.
2
Set the rate reduction per point and cost per point from your lender's quote.
3
Enter how many years you plan to keep the mortgage.
4
Click Analyze Discount Points to compare all four scenarios simultaneously.
5
Review the break-even bars and cumulative savings chart.
6
Scenarios where break-even is shorter than your time horizon are financially worthwhile.

1
Enter your loan details: Input loan amount, the base interest rate (at 0 points), and loan term.
2
Set rate reduction per point: Ask your lender for the actual rate reduction offered per point. The industry standard is 0.25%, but it varies.
3
Set cost per point: Standard is 1% of the loan amount per point. Confirm with your lender — some charge more or less.
4
Enter your expected time horizon: How many years do you plan to keep this mortgage before selling or refinancing? This is the most important input.
5
Analyze the comparison: Review break-even months for each scenario. If break-even is shorter than your time horizon, the points are worth buying.

Example Calculation

Example: $400,000, 30-year loan at 7.0% base rate

0 points: 7.000% → $2,661/mo

1 point: 6.750% → $2,594/mo | Point cost: $4,000

2 points: 6.500% → $2,528/mo | Point cost: $8,000

1-point break-even: $4,000 / ($2,661 − $2,594) = $4,000 / $67 = 60 months (5 yrs)

2-point break-even: $8,000 / ($2,661 − $2,528) = $8,000 / $133 = 60 months (5 yrs)

If you stay 10+ years: either point option saves $10,000+

If you sell at 5 years: neither option has recovered its cost yet

Understanding Mortgage Points | Discount Points Break-Even Analysis

The Real Rate Reduction Varies — Ask Before You Calculate

This calculator defaults to 0.25% rate reduction per point, which is a common industry approximation. In practice, the actual reduction offered by lenders fluctuates with market conditions and can range from 0.125% to 0.375% per point. Before using this tool for a real decision, get the actual par rate (0 points) and the specific rate reduction for 1 and 2 points from your lender's official loan estimate.

When Points Make Sense — and When They Don't

›Fixed-rate, long-horizon buyers: if you are buying a forever home and taking a 30-year fixed, a 5–6 year break-even is generally acceptable. You have 24+ years of savings after that.
›Refinancers: the same math applies, but refinancers typically move again within 5–7 years. A break-even over 48 months is risky for a refi.
›ARM borrowers: buying points on an adjustable-rate mortgage only locks in the savings for the fixed period (5, 7, or 10 years). If you plan to sell or refi before the adjustment, points rarely make sense.
›Rate buy-downs for new construction: builder-paid temporary buy-downs (2-1 buy-down, 3-2-1 buy-down) follow different math — the upfront cost is paid by the builder, so the calculus is different.

Frequently Asked Questions

What is the difference between discount points and origination points?

Discount points reduce your rate; origination points are processing fees. Only discount points go into this break-even analysis.

Are mortgage points tax deductible?

Purchase points on a primary residence: typically fully deductible in year one (if you itemize).

Refinance points: deducted over the life of the loan (amortized).

What if I plan to make extra payments — does that change the break-even?

Extra payments shorten the loan term, which also shortens the time you benefit from the reduced rate. Points are generally less valuable for borrowers making aggressive extra payments.