Points lower your rate — but only break-even tells you if it’s worth it
A discount point is a lever: pay 1% of the loan up front and the lender shaves your interest rate, usually by around a quarter of a percent. That always makes the monthly payment smaller, so a payment drop on its own proves nothing. The real question is whether the months of lower payments ever add up to more than the cash you handed over. That tipping point is the break-even, and it’s the number this calculator puts front and centre.
The break-even formula
break-even months = point cost ÷ monthly payment saving
Each payment itself comes from the amortization formula M = P · r(1 + r)n ÷ ((1 + r)n − 1), computed once at the base rate and once at the reduced rate. Keep the loan past break-even and the points are ahead; sell or refinance first and they’re a loss.
What makes this calculator different
- Break-even, up front. Instead of just a smaller payment, we show the exact month the points pay for themselves — the decision that actually matters.
- Net lifetime saving. We net the up-front cost against the payment savings over the whole term, so you see the true bottom line, not just a tempting monthly number.
- Honest with-vs-without view. Compare rate, payment, and total interest side by side, and get a clear flag when keeping the loan long enough is unlikely.
- Fractional points and your lender’s real rate cut.Model 1.5 points or whatever reduction per point your lender actually quotes.
Frequently asked questions
What are mortgage discount points?+
Discount points are an optional, up-front fee you pay the lender to permanently lower your mortgage interest rate. One point costs 1% of the loan amount — $3,500 on a $350,000 loan — and typically buys roughly a quarter-point (0.25%) off the rate, though the exact reduction varies by lender and market. Because the lower rate applies for the life of the loan, buying points is essentially pre-paying interest in exchange for a smaller payment every month.
How are discount points different from lender credits?+
They are mirror images. Discount points are money you pay up front to get a lower rate and a smaller monthly payment. Lender credits are the opposite: the lender pays some of your closing costs in exchange for a higher rate and a larger payment. Points make sense when you have the cash and plan to keep the loan a long time; credits make sense when you are short on closing cash or expect to move or refinance soon.
When is buying points actually worth it?+
It comes down to the break-even point — the number of months of lower payments it takes to recoup the up-front cost. Divide the point cost by the monthly payment saving. If you keep the mortgage past that break-even, points save you money; if you sell or refinance before it, you lose money on them. Points favor people who will stay in the home and keep the loan for many years.
Are mortgage points tax-deductible?+
Often, yes. Points paid to buy down the rate on a mortgage for your primary residence are generally treated as pre-paid mortgage interest, which may be deductible — sometimes fully in the year paid on a home purchase, or spread over the life of the loan on a refinance. Rules and limits change and depend on your situation, so confirm with a tax professional or current IRS guidance before relying on a deduction.
How is the break-even calculated?+
Break-even months = up-front point cost ÷ monthly payment saving. For example, if one point costs $3,500 and lowers your payment by $55 a month, you break even in about 64 months — just over five years. This calculator computes both payments from the standard amortization formula, the resulting monthly saving, and the exact break-even month, then flags whether you clear it within the loan term.
Disclaimer: This calculator is for educational purposes only. The rate reduction per point, point pricing, and tax treatment vary by lender, market, and your individual situation. It is not financial, lending, or tax advice.