Mortgage Points Calculator

What a point is, and what it is not

One discount point is one percent of the loan amount, paid at closing. That part is fixed by definition: on a $380,000 loan, one point is $3,800.

What a point buys is not fixed by anything. It is a lender pricing decision that changes daily with the mortgage-backed securities market, and it differs between lenders on the same day. A quarter of a point of rate for one point of cost is a common shape, but treating it as a rule will mislead you.

That is why this calculator asks for both rates from your own quote rather than deriving one from the other. Nothing here assumes what a point is worth.

Break-even is the whole calculation

Points cost a known amount now and save a known amount each month. Dividing one by the other gives the month at which you are level:

break-even months = cost of points ÷ monthly saving

Keep the loan past that month and the points were worth buying. End it before — by selling or by refinancing — and they were not. There is no ambiguity in the arithmetic; the uncertainty is entirely in how long you keep the loan.

Refinancing counts as ending the loan, and people forget this. Buying points on a 7% mortgage and refinancing at 5% two years later means the points bought two years of savings against a cost sized for thirty.

Break-even understates the benefit slightly

The simple break-even ignores something in the buyer's favour: a lower rate means more of each payment goes to principal, so the balance falls faster. Sell after ten years and you owe less than you would have on the higher rate.

The net benefit figure on this page counts that. It adds the interest saved over your holding period to the extra principal paid down, then subtracts the cost of the points. It is a fuller answer than break-even alone, and it usually favours the points by a little more than the month count suggests.

A worked example

A $380,000 loan over 30 years, quoted at 6.625% with no points or 6.25% with 1.5 points, expecting to stay nine years.

The points cost $5,700. The payment falls from $2,433 to $2,340 — a saving of $93 a month. Break-even is 62 months, a little over five years. Over nine years the lower rate saves about $12,600 of interest and leaves the balance roughly $2,800 lower, so the net benefit after the $5,700 cost is around $9,700.

Move in four years instead and the same points lose money: about $4,400 of benefit against $5,700 of cost.

When points are the wrong use of the money

Points compete with everything else that cash could do. A larger down payment might cross the 20% line and remove mortgage insurance entirely, which is often worth more than a quarter point of rate. Cash reserves after closing matter, and a purchase that leaves nothing behind is fragile regardless of the rate.

And if rates are high enough that a refinance within a few years is plausible, points are a bet against your own likely behaviour.

What this does not cover

• Negative points. A lender credit works in reverse — a higher rate in exchange for cash towards closing costs. Model it by entering the higher rate as the "with points" quote and a zero cost.
• Seller-paid or temporary buydowns. A 2-1 buydown lowers the rate for the first years only and is a different structure.
• Tax treatment. Points on a purchase may be deductible in the year paid; on a refinance they are generally spread over the loan's life. Both only help if you itemize, so no benefit is assumed.
• The opportunity cost of the cash. Money spent on points is money not invested and not held in reserve.

See our methodology for how these tools are built and tested.