What this calculator does
Mortgage points, also called discount points, are a fee you pay the lender at closing in exchange for a lower interest rate. Enter your loan, the rate without points, how many points you would buy and the rate you would get. The calculator shows what the points cost, how much lower the monthly payment is, how long it takes to earn the cost back and whether you come out ahead over the years you expect to keep the loan.
How it is worked out
Cost of the points = loan amount × number of points × cost of one point (usually 1% of the loan). Monthly saving = payment at the rate without points − payment at the rate with points (principal and interest on a fixed-rate loan). Simple break-even = cost ÷ monthly saving. Because a lower rate also pays down the balance a little faster, the calculator shows a second break-even that counts the extra principal paid, and your gain or loss after the years you keep the loan: payments saved + the smaller balance left − the cost of the points.
Example: on a $350,000, 30-year loan, one point costs $3,500 and lowers the rate from 6.5% to 6.25%. The payment drops from $2,212.24 to $2,155.01, a saving of $57.23 a month. The simple break-even is 62 months (5 years 2 months); counting the faster payoff it is 48 months. If you keep the loan 7 years, you are about $2,646 ahead.
When points may or may not pay off
- Points tend to pay off when you keep the loan well past the break-even point.
- If you may sell, move or refinance within a few years, the cost of the points may never be earned back.
- How much a point lowers the rate differs between lenders and from day to day. The Consumer Financial Protection Bureau suggests comparing Loan Estimates with and without points on the same day (CFPB).
- Cash used for points cannot go toward a larger down payment, which also lowers the payment and may remove private mortgage insurance.
Frequently asked questions
How much does one mortgage point cost?
One point usually costs 1% of the loan amount, so one point on a $350,000 loan is $3,500. Lenders can price them differently, so check your Loan Estimate.
How much does a point lower the rate?
There is no fixed amount. Each lender sets it, and it changes with the market. Enter the two rates from your Loan Estimates.
Are mortgage points tax-deductible?
Points paid on a loan to buy or build your main home can often be deducted if you itemize, under rules explained in IRS Topic 504. Points on a refinance are usually deducted over the life of the loan.
What are lender credits?
The opposite of points: you accept a higher interest rate and the lender pays some of your closing costs. That lowers your cash at closing but raises your monthly payment.