Mortgage Points Calculator

Understanding Mortgage Points

Mortgage points (discount points) allow you to pay upfront to get a lower interest rate. This is called "buying down" your rate. On a $400,000 loan, one point costs $4,000 and typically reduces your rate by about 0.25%. The key question is: how long until the monthly savings recover the upfront cost?

How Points Work

• 1 point = 1% of your loan amount — on a $400,000 loan, one point costs $4,000
• Each point typically reduces rate by ~0.25% — so buying 2 points drops your rate about 0.50%
• Paid at closing as part of your closing costs — not rolled into the loan
• Can be negotiated with the lender — sometimes the seller will agree to pay points
• Tax-deductible — points are generally deductible as mortgage interest in the year paid

When Points Make Sense

Buying points isn't right for everyone. The decision depends on how long you plan to stay in the home and what return you could earn elsewhere.

Good Candidates

• Planning to stay in home long-term (5+ years) — more time to recoup the cost
• Have extra cash available at closing — don't drain your emergency fund
• Want to lower monthly payment for budgeting purposes
• Rate is currently higher than desired — buying down may hit your target rate
• Planning to pay off the full term without refinancing

When to Avoid

• Planning to sell or refinance within 3-5 years — you won't break even
• Short on cash for closing — points reduce your cash reserves
• Break-even takes too long — if break-even is 7+ years and you might move, skip the points
• Could invest the money elsewhere for higher returns — $4,000 invested at 7% earns more than the points save

Worked Example

On a $400,000 30-year mortgage at 6.5%:

• Without points: Monthly P&I = $2,528, total interest = $510,177
• With 1 point ($4,000): Rate drops to 6.25%, monthly P&I = $2,463, total interest = $486,646
• Monthly savings: $65/month ($2,528 - $2,463)
• Break-even: $4,000 ÷ $65 = 61.5 months (about 5.1 years)
• Total savings over 30 years: $23,531 ($486,646 - $510,177 - $4,000)

So if you stay in the home longer than 5.1 years, the points pay for themselves. If you sell or refinance before that, you lose money on the points.

Points vs Higher Down Payment

Both points and a larger down payment reduce your monthly payment, but they work differently:

• Points lower your interest rate — the savings compound over the life of the loan
• Down payment reduces your loan amount — less to pay back overall
• Tax deductibility: Points are deductible as interest; down payment is not
• Availability: You can only buy points at closing; you can increase down payment anytime before closing

In most cases, if you have limited cash, a larger down payment is the safer choice. Points only make sense if you have the cash and plan to stay long enough to recover the cost.

Frequently Asked Questions

Can I buy fractional points? Yes — some lenders allow you to buy half-points (0.5% of the loan amount) for a 0.125% rate reduction. This gives you more flexibility in fine-tuning your rate and break-even timeline.

Do points affect my loan-to-value ratio? No. Points don't change your LTV — they're a separate fee paid at closing. Your LTV is based on your loan amount relative to the home's value.

What if the seller pays my points? If the seller agrees to pay points as part of the negotiation, you get the lower rate without the upfront cost. This is essentially free money — but the seller may offset it by increasing the home price.

Related Calculators

• Mortgage Calculator — Standard payment calculator with PITI
• Refinance Calculator — Compare current loan to refinancing
• Compare Mortgages — Side-by-side scenario comparison