Mortgage Points Calculator
One mortgage discount point costs 1% of your loan amount and typically lowers your rate by 0.20%–0.25%. This calculator shows the upfront cost, monthly savings, your exact breakeven month, and total interest saved over the life of the loan.
Enter your loan amount, original rate, points you're considering, and the rate reduction per point to see if buying down your rate makes financial sense for your situation.
| Year | Cumul. Savings | Net Gain/Loss | Status |
|---|
How Mortgage Points Work — and When They're Worth It
Buying discount points is a form of prepaid interest. You pay the lender a lump sum at closing in exchange for a permanently lower interest rate on your mortgage. Each point costs 1% of the loan amount — on a $350,000 loan, one point is $3,500. In return, your lender reduces your interest rate, typically by 0.20%–0.25% per point. The exact reduction depends on current market conditions and the specific lender.
The math is a classic time-value-of-money tradeoff: you spend more now to save money every month going forward. Whether that's a good deal depends entirely on how long you keep the loan. If you sell the home or refinance before reaching the breakeven point, you lose money on the points.
The Breakeven Calculation
The breakeven point is how many months it takes for your accumulated monthly savings to equal the upfront cost of the points. If your breakeven is month 60 (5 years), and you plan to keep the loan for at least 5 years, buying points is a net positive. If you might move or refinance in 3 years, it's not.
Simple breakeven formula: Cost of Points ÷ Monthly Payment Savings = Breakeven Months. For 2 points on a $350,000 loan at 7% (rate reduced to 6.5%): $7,000 cost ÷ ~$113/month savings ≈ 62 months (about 5 years). After month 62, every monthly payment is pure net gain.
Points in a Higher-Rate Environment
When mortgage rates are elevated, buying points becomes more attractive for buyers planning long-term homeownership — the absolute dollar savings per month are larger because the rate reduction applies to a higher base. A 0.5% rate reduction on a 7% loan ($350,000) saves about $113/month. The same reduction on a 4% loan saves about $98/month. Higher rates mean bigger monthly savings per point purchased.
| Points | Cost | Rate (from 7%) | Monthly Savings | Breakeven | 30-Yr Savings |
|---|---|---|---|---|---|
| 0.5 points | $1,750 | 6.875% | $29 | ~60 mo | $10,400 |
| 1 point | $3,500 | 6.75% | $57 | ~61 mo | $20,700 |
| 2 points | $7,000 | 6.5% | $113 | ~62 mo | $40,500 |
| 3 points | $10,500 | 6.25% | $169 | ~62 mo | $60,300 |
Points vs. a Larger Down Payment
If you're below 20% down, the decision between buying points or increasing your down payment changes the analysis. Pushing your LTV below 80% eliminates PMI entirely — which often saves more per month than buying points. Run both scenarios: compare the monthly cash flow impact and the total cost over your expected holding period. In many cases, reaching 20% down first is the higher-priority financial move.
For more on the decision framework behind buying points, see Should You Buy Mortgage Points? To understand how PMI affects your monthly cost alongside rate decisions, read What Is PMI and When Does It Go Away?
Related Reading
Also see: Mortgage Calculator for your full payment breakdown, or Refinance Calculator to compare future refinance scenarios.
Frequently Asked Questions
What is a mortgage discount point?
A mortgage discount point is a fee paid upfront at closing equal to 1% of the loan amount. Each point typically lowers your interest rate by 0.20%–0.25%, though the exact reduction varies by lender and market conditions. Buying points "buys down" your rate — you pay more upfront to save on monthly payments and total interest over the life of the loan.
How many points should I buy?
The right number depends on your breakeven timeline. If you plan to stay in the home for 7+ years, 1–2 points often make financial sense. If you might sell or refinance within 3–5 years, the upfront cost may not be recouped. Calculate your breakeven month: if it's shorter than your expected stay, buying points is likely worthwhile.
Are mortgage points tax deductible?
Points paid on a purchase mortgage are generally fully deductible in the year paid if you itemize deductions and the loan is for your primary residence. Points on a refinance must typically be deducted over the life of the loan. Always consult a tax professional for your specific situation; see IRS Publication 936 for mortgage interest deduction rules.
What is the difference between discount points and origination points?
Discount points are prepaid interest used to lower your rate. Origination points are lender fees for processing your loan — they don't reduce your rate. Always compare APR (Annual Percentage Rate) across loan offers, which factors in both types of fees to give you a true apples-to-apples comparison.
Is it better to buy points or make a larger down payment?
If you're close to 20% down and eliminating PMI is possible, the bigger down payment usually wins — PMI elimination often saves more per month than buying points. If you're already at 20%+, buying points can deliver a strong return for long-term homeowners. Run both scenarios using this calculator and the PMI calculator to compare.