Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The identical dollar amount spent on points or applied as additional down payment produces two different kinds of benefit. Points lower the rate and monthly payment for as long as the loan lasts, while extra down payment reduces the balance being borrowed and can also remove mortgage insurance, and which one wins depends on holding time and how close the loan sits to an insurance threshold.
Before you rely on it
What to check
Check whether the additional funds would cross a mortgage-insurance removal threshold as extra down payment. That can outweigh a points-based rate reduction on its own.
The common error
Where people go wrong with mortgage points vs. down payment calculator
Assuming points are always the better use of extra cash because they lower the rate. Extra down payment can deliver a bigger practical benefit if it eliminates mortgage insurance, something a rate reduction alone doesn't touch.
Sensitivity evidence
How starting loan amount changes the monthly advantage of points
| Starting loan amount | Monthly advantage of points | Point cost / alternative down payment | Break-even time |
|---|---|---|---|
| $280,000 | $42 | $4,200 | 100.0 months |
| $315,000 | $47 | $4,725 | 100.0 months |
| $350,000worked example | $52 | $5,250 | 100.0 months |
| $385,000 | $58 | $5,775 | 100.0 months |
| $420,000 | $63 | $6,300 | 100.0 months |
Every input, tested
Which input moves the monthly advantage of points most
| Input | Tested from | To | Monthly advantage of points at each end | Swing |
|---|---|---|---|---|
| Rate after points | 5.4% | 7.4% | $276 to -$181 | $457 (871%) |
| Rate without points | 5.8% | 7.8% | -$172 to $286 | $458 (872%) |
| Loan term | 22.0 years | 38.0 years | $41 to $60 | $19 (37%) |
| Points charged | 1.3% | 1.8% | $58 to $47 | $11 (22%) |
| Starting loan amount | $315,000 | $385,000 | $47 to $58 | $10 (20%) |
Two variables at once
Monthly advantage of points by starting loan amount and rate without points
| Starting loan amount \ Rate without points | 4.8% | 6.8% | 8.8% |
|---|---|---|---|
| $280,000 | -$308 | $42 | $423 |
| $315,000 | -$347 | $47 | $476 |
| $350,000 | -$385 | $52 | $529 |
| $385,000 | -$424 | $58 | $581 |
| $420,000 | -$462 | $63 | $634 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Starting loan amount | $350,000 |
| Rate without points | 6.8% |
| Rate after points | 6.4% |
| Points charged | 1.5% |
| Loan term | 30.0 years |
| Monthly advantage of points | $52 |
| Point cost / alternative down payment | $5,250 |
| Break-even time | 100.0 months |
Where the inputs come from
Starting loan amount is the loan before either choice. Rate without points and rate after points are two quotes for the same loan. Points charged is the percentage of the loan you would pay for the lower rate. The same cash could instead be applied to the down payment, which lowers the loan amount and the payment.
Using the monthly advantage of points in a real decision
If you are locked into a fixed loan amount, points can be the only lever.
When the result stops applying
A larger down payment may avoid PMI, which can tilt the decision strongly, and it shrinks the loan permanently. Points reduce the rate but only for as long as you keep the loan. Neither option helps if you must hold cash reserves. The rate reduction per point differs by lender and day.
What to compare it with
Add the effect on PMI and the reserve you would keep. If the extra down payment crosses the 80% threshold, it usually wins. If not, points may pay off over a long hold. The mortgage points calculator gives a break-even for the points alone, and the down payment calculator shows cash needed. Ask the lender to quote both structures, since the savings per dollar differ by loan size and rate.
People also ask
Frequently asked questions
Which is better, points or a bigger down payment?
It depends on the savings each buys and whether the down payment removes PMI. Compare monthly savings per dollar.
Can I do both?
Yes, if you have the cash, though every dollar spent on points or a larger down payment is a dollar not left in reserves. Keep enough liquid savings for repairs and income disruptions before splitting money between the two.
What if I sell in a few years?
Points lose value if you sell or refinance early, because the fee is spent and the lower rate ends with the loan. A bigger down payment stays with the house as equity, which comes back to you at sale.