What This Calculator Does
Mortgage points (also called discount points) are fees you pay upfront to your lender at closing in exchange for a lower interest rate. One point typically costs 1% of your loan amount and reduces your rate by about 0.25%. This calculator helps you determine if buying points makes financial sense.
How It Works
The calculator compares your monthly payment with and without buying points, calculates your break-even period (when monthly savings equal the points cost), and factors in the opportunity cost of tying up that money. It gives you a net benefit figure that accounts for your expected timeline.
Why It Matters
Buying points can save thousands over the life of your loan, but only if you stay long enough to recoup the upfront cost. If you sell or refinance before reaching the break-even point, you've lost money. This analysis helps you make a data-driven decision.
Mortgage Details
Rate difference per point: 0.250%
Analysis Results
Monthly Payment Comparison
Financial Summary (10 years)
Analysis Notes:
- • Break-even occurs when monthly savings equal points cost
- • Opportunity cost assumes investing points cost at 3% annually
- • Recommendation considers your 10-year timeline
Savings, if any, vary based on consumer credit profile, interest rate availability, and other factors.
Default rates: Federal Reserve Economic Data (FRED), Freddie Mac Primary Mortgage Market Survey
How Mortgage Points Is Calculated
The calculator compares your monthly payment with and without buying points, calculates your break-even period (when monthly savings equal the points cost), and factors in the opportunity cost of tying up that money. It gives you a net benefit figure that accounts for your expected timeline.
CurrentPayment = L × r1(1+r1)^n/((1+r1)^n−1); PointsPayment = L × r2(1+r2)^n/((1+r2)^n−1) Points Cost = L × PointsCost% Break-even months = PointsCost / (CurrentPayment − PointsPayment) Total Payment Savings = MonthlySavings × (YearsBeforeSelling×12) Opportunity Cost = PointsCost × ((1+InvestReturn)^YearsBeforeSelling − 1) Net Benefit = TotalPaymentSavings − PointsCost − OpportunityCost; recommend 'buy' if Net Benefit > 0 Where: L = loan amount, r1/r2 = monthly rates (current/with points), n = term×12. Assumptions: Fixed 0.25% rate reduction assumed per point for display only (not used in net-benefit math, which uses user-entered rates directly); opportunity cost compounds annually; no tax effects considered.
Key Takeaways
- •Buying points makes sense when you plan to stay past the break-even point
- •Factor in opportunity cost — what else could you do with that money?
- •Points are typically tax-deductible in the year you pay them
- •Consider your refinance likelihood — if rates drop, you might refinance before break-even
- •Compare buying points vs. making a larger down payment instead
- •Lender credits (negative points) can make sense if you plan to move or refinance soon
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