Mortgage Points Calculator
Determine whether buying mortgage discount points is worth the upfront cost. Compare monthly payments with and without points, see your break-even timeline, and calculate total savings over the life of your loan.
Points Analysis
Total mortgage loan principal
Annual interest rate without points
Length of the mortgage (e.g., 15 or 30)
Each point = 1% of loan amount
Typically 0.25% per point (varies by lender)
How to Use This Calculator
Enter Loan Details
Input your mortgage loan amount, the offered interest rate, and the loan term in years. These are typically found on your loan estimate from your lender.
Set Points Options
Enter how many discount points you are considering buying and the rate reduction per point offered by your lender. The standard is about 0.25% per point.
Review the Analysis
Compare monthly payments, see the break-even period, and review total lifetime savings to decide whether buying points is the right financial move for you.
How Mortgage Points Are Calculated
Break-Even = Cost of Points / Monthly SavingsMortgage discount points are prepaid interest you pay at closing to reduce your mortgage interest rate. Each point costs 1% of your loan amount and typically reduces your rate by about 0.25%.
Point Cost = Loan Amount x Points x 1%New Rate = Original Rate - (Points x Reduction per Point)Monthly Payment = P x [r(1+r)^n] / [(1+r)^n - 1]The key calculation steps are:
- Calculate the cost of points - multiply your loan amount by the number of points and 1% (e.g., $300,000 x 1 point = $3,000)
- Determine the reduced rate - subtract the total rate reduction from your original rate
- Compare monthly payments - calculate payments at both the original and reduced rates using the amortization formula
- Find the break-even point - divide the cost of points by your monthly savings to see how many months it takes to recoup the upfront cost
- Calculate lifetime savings - subtract the total cost with points (payments plus upfront cost) from the total cost without points
The break-even period is the most important metric. If you plan to keep your mortgage longer than the break-even period, buying points saves you money. If you might sell, refinance, or move sooner, the upfront cost may not be recovered.
Frequently Asked Questions
What are mortgage discount points?
Mortgage discount points (often just called "points") are fees you pay directly to your lender at closing in exchange for a lower interest rate. Each point costs 1% of your loan amount. For example, one point on a $300,000 loan costs $3,000. In return, the lender reduces your interest rate, typically by 0.25% per point, though this varies by lender and market conditions.
When does buying mortgage points make sense?
Buying points makes financial sense when you plan to stay in your home long enough to recoup the upfront cost through monthly savings. This is known as the break-even period. If your break-even period is 5 years and you plan to stay for 15 years, buying points is beneficial. Points are less attractive if you might refinance, sell, or move before reaching the break-even point.
Are mortgage points tax deductible?
Yes, mortgage discount points are generally tax deductible as prepaid mortgage interest. For a purchase mortgage, points are usually fully deductible in the year they are paid. For a refinance, points must typically be deducted over the life of the loan. However, tax rules vary, so consult a tax professional for advice specific to your situation.
What is the difference between discount points and origination points?
Discount points are used to buy down (reduce) your interest rate and are optional. Origination points are fees the lender charges for processing and underwriting the loan, and they do not reduce your rate. This calculator focuses on discount points only. When comparing lenders, be sure to distinguish between these two types of points in their fee estimates.
How many mortgage points can I buy?
Most lenders allow you to buy between 1 and 4 discount points, though some may allow more. You can also buy fractional points (e.g., 0.5 points). There is generally a point of diminishing returns, where additional points provide less rate reduction. The optimal number depends on your loan size, how long you plan to keep the mortgage, and your available cash at closing.
Important Disclaimer
This calculator provides estimates for educational and comparison purposes only. Actual mortgage rates, point costs, and rate reductions vary by lender, loan type, credit score, and market conditions. The calculator does not account for tax benefits of deducting points, the opportunity cost of the upfront payment, or potential future refinancing. Always consult a qualified mortgage professional before making financial decisions.