Discount Points Calculator — Should You Buy Mortgage Points?
See how many months it takes for mortgage discount points to pay for themselves, and whether buying down your rate makes financial sense.
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What Are Mortgage Discount Points?
Discount points are upfront fees you pay to the lender at closing in exchange for a lower interest rate. Each point costs 1% of the loan amount and typically reduces your rate by about 0.25%. The key question is whether the monthly savings from the lower rate will exceed the upfront cost before you sell or refinance.
How to Decide If Points Are Worth It
The decision depends on how long you plan to keep the loan. If your breakeven is 60 months (5 years) and you expect to stay in the home for at least 7 years, points likely pay for themselves. If you might sell or refinance sooner, the upfront cost may not be recovered. This calculator shows you the exact breakeven point so you can make an informed choice.
How Discount Points Are Calculated
The calculation starts with the standard amortization formula for a fixed-rate mortgage. First, the calculator finds the base monthly payment using your loan amount, rate and term. It then applies your chosen number of points: each point costs 1% of the loan amount (so one point on a $300,000 loan costs $3,000) and reduces the rate by your selected rate reduction, typically 0.25% per point. With the lower rate, it recalculates the monthly payment.
The monthly savings is the difference between the two payments. To find the breakeven, the calculator divides the total cost of the points by the monthly savings. For example, if one point costs $3,000 and saves $50 a month, the breakeven is 60 months. It also compares the cumulative savings over the loan term against the upfront cost, so you can see exactly when buying points starts putting money in your pocket — and whether that happens before you plan to sell or refinance.
Worked Example: One Point on a $300,000 Loan
Imagine you are taking a $300,000, 30-year fixed mortgage at a base rate of 6.5%. One discount point costs 1% of the loan amount — $3,000 — and knocks 0.25% off your rate, bringing it to 6.25%.
At 6.5%, the principal-and-interest payment is about $1,896. At 6.25%, it drops to roughly $1,847. That is a monthly saving of about $49. Divide the $3,000 cost by $49 and you get a breakeven of about 61 months — roughly 5 years. If you stay in the home past that point, every month after the breakeven is pure savings, and over the full 30-year term the reduction in interest adds up to roughly $17,600.
If you plan to sell or refinance before the breakeven, the math flips and the $3,000 is likely money lost. That is why the breakeven month — not the lower rate — is the number that should drive your decision.
Frequently Asked Questions
What are discount points on a mortgage?
Discount points are upfront fees paid to the lender at closing in exchange for a lower interest rate. Each point costs 1% of the loan amount and typically reduces the rate by about 0.25%. They are also called "buying down the rate."
How long does it take for mortgage points to pay for themselves?
The breakeven period is the total cost of the points divided by the monthly savings they create. For example, if one point costs $3,000 and saves $50 per month, it takes 60 months (5 years) to break even. If you plan to stay in the home longer than the breakeven, points usually pay off.
Are mortgage points tax deductible?
In the United States, discount points are generally tax deductible in the year you close on the mortgage, as prepaid home mortgage interest. However, tax rules vary by country and situation. Consult a tax professional for advice specific to your case.
How much is one discount point?
One discount point costs exactly 1% of your loan amount. On a $300,000 loan that is $3,000; on a $400,000 loan it is $4,000. In exchange, one point typically lowers your interest rate by about 0.25%, though the exact reduction depends on the lender and the market.
How do I use a mortgage point buying calculator?
Enter your loan amount, base rate, term and the number of points you are considering. The calculator shows the upfront cost of the points, your new rate, the lower monthly payment, the monthly savings and the breakeven month. Compare 0, 1, 2 and 3 points to see how the breakeven changes, then pick the option that pays off before you expect to sell or refinance.
Do discount points work the same way on an FHA loan?
FHA loans let you buy down the rate with discount points using the same mechanics, and the 1.75% upfront mortgage insurance premium (UFMIP) can also be financed into the loan. Just remember that FHA borrowers pay annual mortgage insurance on top, so run the numbers with a mortgage insurance calculator to see the true cost before deciding how many points, if any, to buy.