Mortgage Points Break-Even Calculator
Cost of buying mortgage discount points vs. monthly payment savings → break-even month and lifetime savings.
Result
- Loan amount$400,000
- Base rate6.500%
- Rate after points6.000%
- Rate reduction0.500%
- Points purchased2.000 (= 2.000% of loan)
- Points cost (up-front)$8,000
- Tax benefit (0% marginal)$0
- Net cost of points$8,000
- Monthly P&I — base$2,528.27
- Monthly P&I — after points$2,398.2
- Monthly savings$130.07
- Break-even (months)61.5
- Break-even (years)5.13
- Lifetime interest — base$510,177.95
- Lifetime interest — points$463,352.76
- Gross lifetime savings$46,825.2
- Net lifetime savings (over points cost)$38,825.2
- VerdictMedium payback (5.1 yrs) — favourable for a 7+ year hold.
Step-by-step
- Up-front cost = 2.000 pts × 1% × $400,000 = $8,000.
- Tax benefit (Pub 936, year-of-purchase deduction) = $8,000 × 0% = $0; net cost = $8,000.
- Monthly P&I at 6.500%: $2,528.27. At 6.000%: $2,398.2.
- Monthly savings = $130.07.
- Break-even months = $8,000 / $130.07 = 61.5 months.
How to use this calculator
- Enter loan amount, base rate (lender's quote without points), and the discounted rate offered with points.
- Enter the number of points being bought — 1 point = 1% of the loan amount paid up-front.
- Set marginal tax rate ONLY if you itemize on Schedule A; otherwise leave at 0.
- Compare break-even months to your realistic hold period (planned years in the home AND the refinance horizon, whichever is shorter).
About this calculator
"Discount points" are an up-front fee paid to a lender to permanently lower your mortgage rate. Each point costs 1% of the loan amount and typically buys down 0.25 percentage points of rate (varies by lender, loan program, and rate environment). The trade-off is straightforward: a higher up-front cost in exchange for a lower monthly payment. Worth it if you keep the loan long enough to break even on the points cost. Calculate break-even months = net-cost-of-points ÷ monthly-savings. Most US homeowners refinance or sell within 7-10 years, so a 5-yr break-even is usually safe; a 10+ year break-even rarely pays off in practice. Bonus: points are deductible in the year paid for a primary-residence purchase mortgage (IRS Publication 936), so the after-tax break-even is faster than the gross break-even.