Mortgage Points Break-Even Calculator

Cost of buying mortgage discount points vs. monthly payment savings → break-even month and lifetime savings.

Inputs

Mortgage principal — typically purchase price minus down payment.

Each point typically buys down 0.25 percentage points; varies by lender + market.

1 point = 1% of loan amount paid up-front. Most loans cap at 3-4 points.

If you itemise, points are deductible in the year paid (per IRS Pub 936). Set to 0 to ignore the tax benefit.

Result

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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.

Frequently asked

How much does one point typically reduce my rate?+
0.25 percentage points is the typical market convention but it varies — could be 0.125 in a tight-spread environment or 0.375 in a wider one. Always price the actual buy-down with the lender; the convention is just a benchmark.
Are points always tax-deductible?+
For a primary residence purchase mortgage, yes — points are deductible in the year paid per IRS Pub 936, provided you itemize. For a refinance, points are amortized over the loan life (deduct points÷term per year). For investment property, capitalized into basis.
When are points worth it?+
When your expected hold period for the loan exceeds the break-even months by a comfortable margin. If you plan to refi or move in 5 years, a 4-year break-even is good; a 7-year break-even is risky.
What about negative points (lender credits)?+
Lenders sometimes offer credits at a higher rate — the inverse of points. Useful if you have limited cash at closing. The same break-even logic applies in reverse — short-hold loans benefit from credits, long-hold from points.
Why do my break-even months differ from a lender's estimate?+
Lenders sometimes use simplified math (points-cost / monthly-savings) ignoring the tax benefit and lifetime opportunity-cost of the points cost. This calculator surfaces both; the tax-adjusted break-even is typically 2-4 months faster than the gross break-even.
Source?+
Consumer Financial Protection Bureau (CFPB) — "Understanding loan options" / discount points explainer. IRS Pub 936 — Home Mortgage Interest Deduction (year-of-purchase points deduction). Mortgage Bankers Association weekly rate-and-points survey for typical buy-down conventions.

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