Mortgage Discount Points Calculator
Discount points are prepaid interest: one point costs 1% of the loan and cuts your rate by roughly 0.25%. The key question is the breakeven — how long the lower payment takes to repay the upfront cost. This calculator finds it, plus your monthly and lifetime savings.
Use this mortgage points calculator to decide whether buying down your rate is worth it. Enter the loan, term, your rate before points, how many points you will buy and the rate cut per point — it returns the cost, your new rate and payment, the monthly saving and the exact breakeven in months and years.
Enter the loan, rate and points, then press Calculate to see the cost, savings and breakeven.
How the discount points calculator works
Buying discount points means paying interest up front to get a lower rate for the life of the loan. The math that matters is the trade between a one-time cost and a smaller monthly payment. This calculator computes both sides: the cost of the points (points times 1% of the loan) and the monthly saving (the difference between the payment at your original rate and the payment at the reduced rate). Dividing the cost by the saving gives the breakeven — the month your savings finish repaying the fee. After that point, every payment is money in your pocket.
The decision hinges on how long you keep the loan. Stay well past breakeven and points are one of the cheapest ways to cut lifetime interest; sell or refinance before it, and you have paid for a benefit you did not fully use. Because the reduction per point varies by lender, the calculator lets you set it to match your own loan estimate rather than assuming a fixed figure. Check the resulting payment against the full mortgage calculator.
The breakeven formula
- New rate — old rate − (points × rate cut per point)
- Cost — paid at closing, in cash
- Breakeven — months until savings repay the cost
When points make sense
Points reward patience. The longer you hold the mortgage, the more the small monthly saving compounds against a fixed upfront cost. A buyer who is confident they will stay in the home for a decade or more, and who does not expect to refinance, is the classic candidate — they sail past breakeven and pocket years of savings. Points can also help a borrower who needs a slightly lower payment to qualify, since the reduced rate lowers the monthly obligation. If you have spare cash at closing and a low tolerance for rate risk, locking in less interest for the life of the loan is a rational move.
When to skip them
Skip points if there is any real chance you will move or refinance before breakeven — the upfront cost is largely wasted if you exit early. They are also a weaker choice when that same cash would do more elsewhere: growing your down payment to avoid PMI, clearing high-interest debt, or simply staying liquid. And in a falling-rate environment, paying to buy down a rate you might refinance away from soon rarely pays off. Always weigh the breakeven against your honest timeline, not the best case.
Estimate only — not a loan offer or financial advice. The actual rate reduction per point is set by your lender and shown on your loan estimate. Use those figures for a precise comparison.
How to use it & key terms
Enter the loan, rate before points, term, the points you will buy, the rate cut per point and how long you will stay, then press Calculate to see the cost, new payment, monthly saving and breakeven.
| Term | What it means |
|---|---|
| Discount point | An upfront fee of 1% of the loan that lowers your rate. |
| Rate buydown | Another name for buying points to reduce the interest rate. |
| Rate cut per point | How much each point lowers the rate — about 0.25% typically. |
| Breakeven | Months until the monthly saving repays the cost of the points. |
| Net saving | Total saved over your stay, minus the cost of the points. |
| P&I | Principal and interest — the payment the rate applies to. |
Sources & methodology
The calculator prices points as the number of points times 1% of the loan amount. It computes the new rate by subtracting points times the rate cut per point from your original rate, then amortizes the loan at both rates to find the two monthly payments. The monthly saving is the difference, and the breakeven is the cost divided by that saving, expressed in months and years. Net saving over your expected stay is the monthly saving times the months you keep the loan, minus the upfront cost. All payments use the standard fixed-rate amortization formula.
Sources: Consumer Financial Protection Bureau guidance on discount points (one point = 1% of the loan; typical reduction around 0.25% per point), and the standard mortgage amortization formula.
Break-even, opportunity cost, and lender credits
Discount points are really a bet on time. You pay cash today for a lower rate, and that lower payment slowly repays the upfront cost. The break-even point is simply how many months of savings it takes to recover what you paid. Keep the loan well beyond that point and the points were a good deal; sell, refinance, or pay the loan off first and you lose money on them. So the single most useful question is not how much is the rate cut? but how long will I really keep this exact loan?
Two forces push the answer around. The first is opportunity cost: the money spent on points could have gone toward a larger down payment, an emergency fund, or an investment, so the true hurdle is not just breaking even but beating what that cash would have earned elsewhere. The second is uncertainty. Life plans change, and rates fall; a break-even that looks fine at seven years is far less attractive if there is a decent chance you refinance in three.
Points also run in reverse. Instead of paying to lower the rate, you can accept a slightly higher rate in exchange for lender credits — sometimes called negative points — that reduce or even cover your closing costs. This is the mirror image of buying points: you trade a higher lifetime interest cost for less cash needed at the table. Credits often make sense when money is tight upfront or when you expect to move or refinance soon, exactly the situations where paying points does not.
A few practical notes. Points are quoted as a percentage of the loan, so the same number of points costs more on a larger mortgage. The rate reduction per point is not fixed — it varies by lender and market — so always compare the specific rate-and-cost combinations you are actually offered rather than a rule of thumb. Because points are prepaid interest, they may carry tax implications on a primary home, which is worth raising with a tax adviser. Run your own hold time through the calculator above and let the break-even, not the sales pitch, guide the choice.
Frequently asked questions
What are mortgage discount points?
Discount points are an optional upfront fee you pay the lender to lower your interest rate. One point costs 1% of the loan and typically reduces the rate by about 0.25%, though the exact reduction varies by lender. Points are also called buying down the rate.
How much does one mortgage point cost?
One point equals 1% of the loan amount. On a $320,000 loan, one point costs $3,200. You can usually buy points in fractions, so half a point would be $1,600. The cost is paid at closing, on top of your down payment and other costs.
How do I know if buying points is worth it?
Compare the cost of the points with your monthly savings to find the breakeven — the number of months for the lower payment to repay the upfront fee. If you will keep the loan longer than breakeven, points usually pay off; if you might move or refinance sooner, they may not.
How much does one point lower my rate?
A common rule of thumb is that one point lowers the rate by about 0.25%, but it depends on the lender and market — some offer more or less per point. This calculator lets you set the reduction per point so you can match your actual loan estimate.
Are mortgage points tax deductible?
Points paid to buy down the rate on a mortgage for your main home are often deductible, sometimes in the year paid and sometimes over the life of the loan. The rules have conditions, so check current IRS guidance or a tax professional rather than assuming a deduction.
What is the breakeven point on mortgage points?
The breakeven is the cost of the points divided by the monthly savings. If points cost $4,800 and save $79 a month, breakeven is about 61 months, or just over five years. Stay in the loan past that and the points have paid for themselves.
Should I buy points or make a bigger down payment?
It depends on your goals. Points lower your rate and payment, while a bigger down payment lowers the loan and can help you avoid PMI. If avoiding mortgage insurance or reducing the balance matters more, the down payment may win; if you want the lowest long-term rate and will stay put, points can be better.
What is a 2-1 buydown?
A 2-1 buydown is a temporary interest-rate reduction, usually paid for by the seller or builder. Your rate is cut by two percentage points in the first year and one point in the second, then returns to the full note rate for the rest of the loan. A 3-2-1 buydown works the same way over three years, and a 1-0 buydown lasts a single year. The cost is held in an escrow that funds the lower payments.
What is the difference between discount points and a temporary buydown?
Discount points are a permanent buydown — you pay upfront to lower the rate for the whole life of the loan. A temporary buydown, such as a 2-1 or 3-2-1, lowers the rate only for the first one to three years before it returns to the full rate. Points are usually buyer-paid and best for long-term owners; temporary buydowns are often seller-paid. This calculator models the permanent points buydown.
Should I buy down my mortgage rate?
It comes down to how long you keep the loan. A permanent buydown with points pays off if you stay well past the breakeven month shown above. A temporary buydown makes more sense when someone else, often the seller, is paying, or when you expect your income to rise and want lower payments early. If you might move or refinance soon, buying down the rate with your own cash rarely pays.