Lenders let you pay discount points up front to lower your mortgage interest rate. This calculator works out the cost of the points, your reduced rate, the monthly payment saving, and the break-even point — so you can decide whether buying points is worth it.
How it works
One point costs 1% of the loan, and each point lowers the rate by a reduction you specify (about 0.25% is common). The tool computes the standard amortised monthly payment at both the base and reduced rates:
payment = principal × r ÷ (1 − (1 + r)⁻ⁿ)
where r is the monthly rate and n the number of payments. The monthly saving is the difference between the two payments, and break-even is the up-front cost divided by that saving.
Example
On a $300,000 loan over 30 years, buying 2 points (cost $6,000) to cut the rate from 6.0% to 5.5%:
- Base payment: $1,798.65/month
- New payment: $1,703.37/month
- Saving: $95.28/month
- Break-even: 6000 ÷ 95.28 ≈ 63 months (about 5 years 3 months)
| Item | Value |
|---|---|
| Points cost | $6,000 |
| Rate | 6.0% → 5.5% |
| Monthly saving | $95.28 |
| Break-even | ~63 months |
Buying points makes sense when you keep the loan well past break-even. Everything stays in your browser with no network requests.
When buying points is worth it — and when it is not
The break-even calculation is necessary but not sufficient for the decision. A few additional factors change whether points make financial sense.
How long you actually keep the loan
The break-even point tells you when you recover the up-front cost through lower payments. But the true payoff window requires you to hold the loan — not just the home. If you refinance when rates drop, you may lose the remaining unrecovered point cost. Points are most valuable when you are confident you will stay at the same rate for many years.
Opportunity cost of the up-front payment
Points money paid at closing cannot be invested elsewhere. If you use $6,000 to buy two points on a $300,000 loan, that $6,000 is no longer available to compound in an investment account. If your expected investment return is higher than the equivalent return from the interest saving, points may underperform the alternative use of capital.
As a rough heuristic: if your break-even is under 4–5 years and you are confident you will keep the loan, points typically win. If break-even is 7–8+ years and you might refinance or move, points are a gamble.
Points versus a larger down payment
An alternative use of the same cash is a larger down payment, which reduces the loan principal directly and may push your LTV below 80% to eliminate PMI. Removing PMI saves a guaranteed monthly amount without a fixed break-even — and it is permanent for conventional loans once equity is established.
Tax deductibility
In the US, discount points paid to buy down a rate on a primary residence are generally deductible as mortgage interest in the year paid (for a home purchase, not a refinance). This lowers the effective cost of the points. Consult a tax advisor for your specific situation.
Quick reference: break-even for common scenarios
| Loan | Points | Rate reduction | Up-front cost | Monthly saving | Break-even |
|---|---|---|---|---|---|
| $200,000 | 1 point | 0.25% | $2,000 | ~$30 | ~67 months |
| $300,000 | 2 points | 0.50% | $6,000 | ~$95 | ~63 months |
| $400,000 | 2 points | 0.50% | $8,000 | ~$127 | ~63 months |
| $500,000 | 1 point | 0.25% | $5,000 | ~$75 | ~67 months |
These are illustrative figures at a base rate near 6%; your actual monthly saving depends on your exact rate and loan amount, which the calculator above computes precisely.