Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Discount points only pay for themselves if the loan is held past the break-even month, so the real decision isn't the points' cost. It's a bet on how long you'll actually keep the loan, and that bet is wrong more often than people expect given how frequently loans get refinanced or homes get sold.
Before you rely on it
What to check
Compare the break-even month against your realistic expected holding period, being honest about how likely a sale or refinance is before that point.
The common error
Where people go wrong with mortgage points calculator
Buying points based on the payment savings alone without checking the break-even timeline against actual plans. Paying upfront for points on a loan that gets refinanced or sold before break-even is a net loss.
Sensitivity evidence
How rate without points changes the break-even time
| Rate without points | Break-even time | Monthly payment savings |
|---|---|---|
| 4.8% | 0.0 months | $0.00 |
| 5.8% | 0.0 months | $0.00 |
| 6.8%worked example | 50.5 months | $84 |
| 7.8% | 13.5 months | $315 |
| 8.8% | 7.7 months | $554 |
Every input, tested
Which input moves the break-even time most
| Input | Tested from | To | Break-even time at each end | Swing |
|---|---|---|---|---|
| Rate without points | 5.8% | 7.8% | 0.0 months to 13.5 months | 13.5 months (27%) |
| Rate with points | 5.4% | 7.4% | 14.1 months to 0.0 months | 14.1 months (28%) |
| Points paid | 1.0% | 1.5% | 40.4 months to 60.7 months | 20.2 months (40%) |
| Loan term | 22.0 years | 38.0 years | 55.1 months to 47.3 months | 7.8 months (15%) |
| Loan amount | $306,000 | $374,000 | 50.5 months to 50.5 months | none |
Two variables at once
Break-even time by rate without points and rate with points
| Rate without points \ Rate with points | 4.4% | 6.4% | 8.4% |
|---|---|---|---|
| 4.8% | 55.9 months | 0.0 months | 0.0 months |
| 5.8% | 14.8 months | 0.0 months | 0.0 months |
| 6.8% | 8.4 months | 50.5 months | 0.0 months |
| 7.8% | 5.8 months | 13.5 months | 0.0 months |
| 8.8% | 4.3 months | 7.7 months | 46.9 months |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Loan amount | $340,000 |
| Rate without points | 6.8% |
| Rate with points | 6.4% |
| Loan term | 30.0 years |
| Points paid | 1.3% |
| Break-even time | 50.5 months |
| Monthly payment savings | $84 |
Where the inputs come from
Loan amount and term come from the loan estimate. Rate without points is the par rate the lender quotes with zero points, and the rate with points is the reduced rate that the same lender offers for the fee. Points paid is entered as a percentage, where one point equals one percent of the loan. Ask for both quotes in writing on the same day so market movements do not distort the comparison.
When the result stops applying
Points may be partly tax deductible in the year paid for a home purchase, but rules depend on your situation. A lender may quote different price-per-point steps at different rates, and points are not always available at all loan sizes. A refinance later wipes out the value of points paid.
What to compare it with
Compare points with the alternative of a lender credit, which is the same trade in reverse. Ask what the pricing looks like at several levels, such as zero, half a point and one point, and compare the break-even at each. Also see the points-versus-down-payment calculator when your cash is limited. The break-even is not a guarantee: a job move or a refinance can end the loan early, so keep it in perspective as a probability of staying, not a certainty.
People also ask
Frequently asked questions
What is one mortgage point?
One point costs one percent of the loan amount and usually lowers the rate by around a quarter of a percent, although the exact reduction varies by lender.
Are discount points tax deductible?
Points paid to buy a primary residence are often deductible when paid, and points on a refinance are usually spread over the loan term. Check your circumstances with a tax professional.
Are lender credits the opposite of points?
Yes, it is the same trade in reverse. A lender credit reduces your cash at closing in return for a higher interest rate, while points cost cash now to lower the rate. Compare the two by the break-even time.