Financial Calculators
Mortgage Points Break-Even Calculator
Calculate whether buying mortgage discount points is worth it. Enter your loan amount, interest rates, and points cost to see your monthly savings, break-even month, and total lifetime savings.
Cumulative out-of-pocket cost - lines cross at break-even
| 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 |
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.