Mortgage Points Calculator

The Mortgage Points Calculator helps you decide whether paying discount points to buy down your interest rate is actually worth it. It compares two paths side by side — paying points upfront for a lower rate, or keeping your cash — and shows the break-even point: the moment the monthly savings finally repay what you spent. Unlike most points calculators, it also models opportunity cost, so you can see when buying points truly beats simply investing the money instead.

What Are Mortgage Discount Points?

Discount points are an upfront fee you pay your lender at closing in exchange for a lower interest rate for the life of the loan. One point costs 1% of the loan amount — on a $350,000 mortgage, one point is $3,500. In return, the lender typically lowers your rate by about 0.25 percentage points per point, though the exact buy-down varies by lender and market. Because points permanently lower your rate, they reduce every monthly payment for as long as you keep the loan.

Mortgage Points Break-Even Formula

The classic break-even tells you how many months of lower payments it takes to recoup the upfront cost:

If points cost $3,500 and lower your payment by $50 a month, you break even after 70 months — about 5 years and 10 months. Keep the loan longer than that and the points pay off; sell or refinance sooner and you lose money.

The Opportunity Cost Most Calculators Ignore

The money you hand over for points is money you no longer have to invest. If you instead kept that cash in a high-yield savings account or the market earning, say, 4% a year, it would grow. A fair comparison pits two growing balances against each other: the cash you kept and invested versus the monthly savings you invested after buying points.

Here \(r\) is the monthly return and \(t\) is the number of months. The point where these two curves cross is the true, opportunity-cost-adjusted break-even — and it always lands a little later than the simple one, because the cash you gave up would have been compounding the whole time. When you set the return to 0%, the math collapses neatly back to the simple formula above.

Example: Buying One Point on a $350,000 Loan

If this buyer keeps the loan for 10 years, the points clearly pay off. If they expect to move in three years, they should keep the cash.

When Are Mortgage Points Worth It?

When to Skip the Points

• You expect to sell or refinance before the break-even point.
• Paying points would force a smaller down payment, possibly triggering mortgage insurance.
• You can earn more by investing the cash than the points save you.
• You need the money for renovations, moving costs, or a cash reserve.

How to Use This Calculator

1. Enter your loan details: Type in your loan amount, term, and the interest rate your lender quotes with no points.
2. Enter the points offer: Set how many points you can buy, how much each lowers the rate (0.25% is typical), and the cost per point (usually 1% of the loan).
3. Set your horizon: Enter how many years you expect to keep the loan, and optionally the annual return your cash could earn elsewhere.
4. Review the results: See your lower payment, the upfront cost, the animated break-even timeline, and a clear verdict on whether to buy points or keep your cash.

Frequently Asked Questions

What are mortgage discount points?

Mortgage discount points are upfront fees you pay your lender at closing to permanently lower your interest rate. One point costs 1% of the loan amount and typically reduces the rate by about 0.25 percentage points, though the exact reduction varies by lender.

How is the break-even on points calculated?

The simple break-even is the upfront cost of the points divided by the monthly payment savings they produce. For example, if points cost $3,500 and lower your payment by $50 a month, you break even after 70 months, or about 5 years and 10 months.

What is opportunity cost in a points decision?

Opportunity cost is what the money you spend on points could have earned if you kept it and invested it instead. When you factor in that lost growth, the true break-even comes later than the simple break-even, because the cash you gave up would have been compounding the whole time.

Are mortgage points worth it?

Points are worth it when you keep the loan well past the break-even point. If you sell or refinance before break-even, you lose money. The longer you hold the loan after break-even, the more the points pay off, so buyers who plan to stay put for many years benefit most.

Are discount points tax deductible?

In the United States, discount points on a mortgage for your main home are often tax deductible, sometimes fully in the year you pay them and sometimes spread over the life of the loan. Rules vary, so consult a tax professional. This calculator does not include any tax effect.

What is the difference between discount points and origination points?

Discount points buy down your interest rate and are what this calculator models. Origination points are a fee the lender charges to process the loan and do not lower your rate, so they should not be entered here.

Additional Resources

• Discount Points - Wikipedia
• Mortgage Loan - Wikipedia