Mortgage Points Break-Even Calculator

	Without Points	With Points
Interest Rate	7.0%	6.75%
Monthly Payment	$2,661.21	$2,594.39
Upfront Cost	$0	−$4,000.00
Total Payments (life of loan)	$958,035.60	$937,980.40

How to use this tool

Enter loan details. Input the loan amount, loan term, and the interest rate without points.
Enter points details. Enter the number of points to buy and the reduced interest rate with points.
Review break-even. See monthly savings, break-even month, and total savings over the loan term.

What Are Mortgage Discount Points?

Discount points are a form of prepaid interest. Each point equals 1% of your loan amount and typically reduces your interest rate by about 0.25%, though the actual rate reduction varies by lender and market conditions.

How the Break-Even Calculation Works

The break-even point is found by dividing the upfront cost of the points by the monthly savings they generate: Break-Even Months = Points Cost ÷ Monthly Savings. If you keep the loan beyond this point, buying points is a net financial benefit.

When Buying Points Makes Sense

Points make the most sense when you plan to stay in your home for a long time and have the cash available upfront. They also make sense in a refinance if the break-even is within a reasonable timeframe.

When to Skip Points

If you expect to sell or refinance before the break-even period, you'll pay more upfront than you save. It may also be better to use those funds for a larger down payment to eliminate private mortgage insurance (PMI).

Points vs lender credits

Discount points and lender credits are two sides of the same trade-off. With discount points, you pay money upfront to get a lower rate. With lender credits (sometimes called "negative points"), the lender pays some or all of your closing costs in exchange for a higher interest rate. The break-even math works identically but in reverse - credits benefit you if you sell or refinance before the break-even period.

Worked example

	Option A (no points)	Option B (1 point)
Loan amount	$400,000	$400,000
Interest rate	7.00%	6.75%
Monthly P&I	$2,661	$2,594
Monthly savings	-	$67
Upfront cost of point	$0	$4,000
Break-even	-	~60 months (5 years)

Tax deductibility

Mortgage discount points may be tax-deductible as prepaid mortgage interest on Schedule A (itemized deductions), but the rules differ:

Purchase loans: points on a home purchase are generally fully deductible in the year paid, subject to limits.
Refinance loans: points must typically be amortized (deducted gradually) over the life of the new loan, not all at once in year one.

Tax laws change and individual situations vary. Consult a qualified tax professional before making decisions based on potential deductibility.

Frequently asked questions

What are mortgage discount points?

Mortgage discount points are fees paid upfront to your lender to reduce (buy down) your interest rate. Each point costs 1% of the loan amount and typically lowers the rate by 0.25%, though this varies by lender.

What is the break-even point?

The break-even point is the number of months it takes for the monthly payment savings to equal the upfront cost of the points. If you plan to stay in your home longer than the break-even period, buying points is generally beneficial.

Should I always buy points to get a lower rate?

Not necessarily. Buying points only makes sense if you will keep the loan long enough to reach the break-even point. If you plan to sell or refinance before then, the upfront cost will outweigh the savings.

Are mortgage points tax deductible?

In the US, mortgage discount points paid on a primary residence purchase may be deductible as home mortgage interest on your federal tax return, subject to certain conditions. Consult a tax professional for advice specific to your situation.