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Mortgage Points Break-Even Calculator

Find out how long it takes for the monthly savings from buying discount points to repay their upfront cost — and whether points make sense for how long you plan to stay.

Inputs

$

The principal amount you are borrowing (not the home price).

%

The rate your lender quoted before purchasing any discount points.

%

The lower rate available after buying the specified number of points.

Number of discount points to buy. One point equals 1% of the loan amount.

How long you expect to keep this loan before selling or refinancing.

Results update as you type, and the address bar keeps your numbers so the link you share reopens this exact calculation.

Break-even point

60

60 monthly payments (5.0 years)

Cost of points

$4,000

1 point × $400,000 loan

Detailed results
Payment without points$2,661
Payment with points$2,594
Monthly payment reduction$66.82
Total interest saved (full term)Total interest savings over the full loan term if you never sell or refinance.$24,054
Net savings at planned horizonYou come out ahead by $1,613 over your planned 7-year horizon.$1,613

What this result means

Break-even point: 60.

Buying 1 discount point costs $4,000 upfront and cuts your monthly payment by $67. At that pace, it takes 60 payments — about 5.0 years — for the savings to repay what you paid at closing. Since you plan to stay 7 years, you clear break-even and come out ahead.

Month-by-month net position (first 120 months)

Tracks your cumulative savings from the lower payment against the upfront cost of points. The net position turns positive at the break-even month. Balance columns show the remaining loan principal on each scenario.

Month-by-month net position (first 120 months). 120 rows, first 12 shown.
MonthCumulative savingsNet positionBalance (with points)Balance (without points)
1$66.82-$3,933$399,656$399,672
2$134-$3,866$399,309$399,342
3$200-$3,800$398,961$399,011
4$267-$3,733$398,611$398,677
5$334-$3,666$398,259$398,341
6$401-$3,599$397,904$398,004
7$468-$3,532$397,548$397,664
8$535-$3,465$397,190$397,323
9$601-$3,399$396,830$396,979
10$668-$3,332$396,468$396,634
11$735-$3,265$396,103$396,286
12$802-$3,198$395,737$395,937

How this is calculated

payment = P × r / (1 − (1 + r)^−n),  r = annual_rate / 12,  n = term_years × 12
cost_of_points = points × loan_amount / 100
monthly_savings = payment_no_points − payment_with_points
break_even_months = cost_of_points / monthly_savings
net_savings_at_horizon = monthly_savings × (planned_years × 12) − cost_of_points

What discount points actually are

A mortgage discount point is a fee you pay at closing equal to 1% of your loan amount. In exchange, the lender permanently lowers your interest rate — typically by 0.125% to 0.25% per point, though the exact reduction varies by lender and market. The fee is paid once; the benefit lasts the life of the loan.

The break-even logic

Buying points is a straightforward trade: spend money today to spend less every month. The break-even point is where the accumulated monthly savings finally equal the upfront cost. Before that month you are behind; after it, every payment puts more money in your pocket relative to not buying the points.

The arithmetic is simple: divide the cost of the points by the monthly payment reduction. A $4,000 points purchase that saves $67 a month breaks even after roughly 60 payments — five years. If you sell or refinance before month 60, the points cost you money on net. If you stay longer, you come out ahead, and the advantage compounds over time.

Why your planned timeline is the critical variable

Points make sense only if you keep the loan long enough to cross break-even. The median first-time homeowner moves or refinances within seven to ten years, which means a break-even shorter than five years is generally favorable and one longer than seven years deserves serious scrutiny. Ask yourself: How likely is a job relocation? Could you need to upsize for a growing family? Is there a chance you'd refinance again if rates drop?

Total interest saved versus break-even

The monthly break-even answer ("when am I whole?") and the total interest saved answer ("how much do I gain over the life of the loan?") serve different questions. If you plan to hold the mortgage to maturity, the lifetime interest figure is the number that matters — and it is almost always substantially larger than the initial cost of the points. A single point on a large loan can save tens of thousands of dollars over 30 years. The break-even analysis simply tells you whether you'll be in the home long enough to capture any of that benefit.

Points vs. a larger down payment

An alternative use of the same cash is a larger down payment, which reduces principal and eliminates or reduces private mortgage insurance. If you are near an LTV threshold (say, 80%) where PMI disappears, a larger down payment often wins. Model both scenarios with the actual numbers before deciding.

Tax deductibility

Mortgage points paid on the purchase of a primary residence are generally deductible as home mortgage interest in the year paid, subject to IRS rules and income limits. This calculator does not model the tax effect. Consult a tax adviser to see whether deductibility improves the effective cost of points in your situation.

Assumptions

  • Payments shown are principal and interest only. Property taxes, homeowners insurance, PMI, and HOA dues are excluded.
  • The rate reduction is fixed for the life of the loan; this calculator does not model adjustable-rate mortgages.
  • Monthly savings are assumed constant — no extra principal payments or partial months are modelled.
  • The schedule and chart assume you stay for the full 120 months (schedule) or 360 months (chart) regardless of your planned horizon input.
  • Total interest saved is calculated assuming the loan is held to full maturity.
  • The tax deductibility of points is not reflected in any output.
  • One point equals exactly 1% of the loan amount; lender-specific point definitions are not modelled.

Frequently asked questions

›What is one mortgage discount point?

One point equals 1% of your loan amount, paid at closing. On a $400,000 loan, one point costs $4,000. In exchange, the lender permanently lowers your interest rate — typically by about 0.125% to 0.25%, though the exact reduction depends on the lender and current market conditions.

›How do I know if buying points is worth it?

Compare the break-even period to how long you plan to keep the loan. If you expect to stay longer than the break-even (e.g., 7 years vs. a 5-year break-even), points are worth it. If you might move or refinance sooner, the upfront cost is unlikely to be recovered.

›What is a typical rate reduction per point?

Lenders vary considerably. A common rule of thumb is 0.25% per point, but reductions of 0.125% to 0.375% are all seen in practice. Always get the exact rate-versus-points schedule from your lender before calculating break-even, because the generic rule of thumb can lead to inaccurate conclusions.

›Are mortgage points tax-deductible?

Points paid on the purchase of a primary residence are generally deductible as home mortgage interest in the year paid under IRS rules, provided you meet certain conditions (the loan is secured by your main home, paying points is an established local business practice, etc.). Points paid on a refinance must usually be deducted ratably over the loan term. Consult a tax professional for your specific situation.

›Should I buy points or put more money down?

It depends on your LTV and whether you're paying PMI. If your down payment is close to 20% (where PMI goes away), allocating cash to close that gap is usually the better use of funds. Above 20% LTV, or once PMI is gone, points become a more competitive option — model both with your specific numbers.

›What happens to my points if I refinance?

The rate reduction from points is tied to the specific loan. If you refinance, you start a new loan and lose any benefit you hadn't yet recovered from the original points. This is why break-even period relative to expected hold time is the key metric: a refinance before break-even means you paid for savings you never received.

›Can I buy a fraction of a point?

Yes. Most lenders allow fractional points such as 0.5 or 1.5. The cost scales linearly: 0.5 points on a $400,000 loan costs $2,000. The rate reduction is proportionally smaller, so the break-even period tends to be similar regardless of whether you buy a fraction or a whole point.

›How do I compare two lenders quoting different rates and points?

Request the Annual Percentage Rate (APR) from each lender, which factors in upfront costs, and then run a side-by-side break-even for each offer using your specific planned hold time. The lender with the lower APR and a break-even shorter than your horizon is generally the better deal, but the monthly payment and total interest figures should both be checked.

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