How do I calculate the break-even on points?

Divide the upfront cost of the points by the monthly payment savings they buy. If a point costs $3,000 and lowers your payment by $50 a month, you break even after $3,000 ÷ $50 = 60 months (5 years).

Are discount points worth it?

It depends on how long you keep the loan. If you will stay well past the break-even month, points save you money overall. If you might sell or refinance sooner, you would lose the upfront cost — so points favor long-term holders.

How much does one point lower my rate?

It varies by lender and market, but a point often reduces the rate by roughly 0.25%. This calculator lets you enter the exact "with points" rate your lender quotes, rather than assuming a fixed reduction.

Does this account for taxes or the time value of money?

No. It compares nominal monthly payments only. Mortgage points may be tax-deductible, which shortens the effective break-even, while the time value of money lengthens it. Treat the result as a solid first approximation.

What are negative points or lender credits?

The opposite of discount points: the lender gives you credit toward closing costs in exchange for a higher rate. That can make sense if you are short on cash at closing or plan to move soon — the mirror image of buying points.

How do I calculate the break-even on points?

Divide the upfront cost of the points by the monthly payment savings they buy. If a point costs $3,000 and lowers your payment by $50 a month, you break even after $3,000 ÷ $50 = 60 months (5 years).

Are discount points worth it?

It depends on how long you keep the loan. If you will stay well past the break-even month, points save you money overall. If you might sell or refinance sooner, you would lose the upfront cost — so points favor long-term holders.

How much does one point lower my rate?

It varies by lender and market, but a point often reduces the rate by roughly 0.25%. This calculator lets you enter the exact "with points" rate your lender quotes, rather than assuming a fixed reduction.

Does this account for taxes or the time value of money?

No. It compares nominal monthly payments only. Mortgage points may be tax-deductible, which shortens the effective break-even, while the time value of money lengthens it. Treat the result as a solid first approximation.

What are negative points or lender credits?

The opposite of discount points: the lender gives you credit toward closing costs in exchange for a higher rate. That can make sense if you are short on cash at closing or plan to move soon — the mirror image of buying points.

Mortgage Points Break-Even Calculator

Decide whether paying discount points is worth it: compare monthly payments with and without points and find the break-even month.

Result

Break-even point

59.9 months (5.0 years)

points cost $3,000.00, save $50.11/mo

Payment without points$1,995.91/mo
Payment with points$1,945.79/mo
Monthly savings$50.11/mo
Upfront cost of points$3,000.00
Break-even59.9 months
Lifetime interest saved$15,040.75

Source: One discount point = 1% of the loan, paid upfront, to lower the rate. Break-even months = points cost ÷ monthly payment savings.

Not financial advice — Compares only the monthly principal-and-interest payment. It ignores the time value of money and tax deductibility of points. If you may sell or refinance before break-even, points usually do not pay off.

Step-by-step

Points cost = loan × points% = $300,000.00 × 1% = $3,000.00.
Monthly payment drops from $1,995.91 to $1,945.79, saving $50.11/month.
Break-even = cost ÷ savings = $3,000.00 ÷ $50.11 = 59.9 months. Keep the loan past this point for points to pay off.

How to use this calculator

Enter the loan amount and the two interest rates (with and without points).
Enter how many points you are buying (1 point = 1% of the loan).
Enter the loan term in years.
Read the break-even month — keep the loan longer than this for points to be worth it.

About this calculator

Discount points let you pay money upfront at closing to lower your mortgage interest rate — essentially prepaying interest. Each point costs 1% of the loan amount and typically shaves a fraction of a percent off the rate. Whether that trade is worth it comes down to how long you keep the loan. This calculator computes your monthly principal-and-interest payment both with and without points, finds the monthly savings, and divides the upfront cost by those savings to get the break-even month — the point at which the cumulative savings finally exceed what you paid. If you keep the mortgage past break-even, the points pay off; if you sell or refinance before then, you lose money. The tool also estimates the lifetime interest saved if you hold the loan to term.

How it works — the formula

Payment = L · r(1+r)ⁿ / ((1+r)ⁿ − 1)   (r = monthly rate, n = months)
Points cost = Loan × points%
Break-even months = Points cost ÷ (Payment_no − Payment_with)

Standard amortization gives each monthly payment; the difference is the monthly saving from the lower rate, and the upfront cost divided by that saving is the break-even time.

Source: CFPB — Discount points and lender credits

Worked examples

Example 1

$300k, 7%→6.75%, 1 point, 30 yr

Inputs:: loan=300000, rateNoPoints=7, rateWithPoints=6.75, points=1, term=30
Output:: save $50.11/mo, break-even ≈ 59.9 months

Example 2

$400k, 6.5%→6%, 2 points, 30 yr

Inputs:: loan=400000, rateNoPoints=6.5, rateWithPoints=6, points=2, term=30
Output:: break-even on $8,000 cost

Example 3

$200k, 7%→6.5%, 1 point, 15 yr

Inputs:: loan=200000, rateNoPoints=7, rateWithPoints=6.5, points=1, term=15
Output:: faster break-even on shorter term

Limitations

Compares principal-and-interest only; excludes taxes, insurance, PMI.
Ignores the time value of money and points' tax deductibility.
Assumes you hold the same loan; refinancing resets the math.

Decision-support estimate; confirm exact rates and point costs with your lender.

Frequently asked

A discount point is an upfront fee equal to 1% of the loan amount that you pay at closing to reduce your interest rate. Buying points is sometimes called "buying down" the rate. The savings come as a lower monthly payment for the life of the loan.