Mortgage Points Break-Even Calculator
Paying discount points buys a lower interest rate for cash upfront. This shows how long it takes the lower payment to repay that cash — and how much interest you'd save if you keep the loan.
Break-even point
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Enter your details and calculate.
Break-even = points cost ÷ monthly savings. Points pay off only if you keep the loan well past the break-even month, so they suit borrowers who plan to stay put and not refinance.
What discount points are
Discount points are prepaid interest. You pay the lender a lump sum at closing and, in exchange, they lower your interest rate for the life of the loan. One point usually costs 1% of the loan amount and lowers the rate by somewhere around a quarter point, though the exact trade varies by lender and day.
Because you're paying cash now to save a little every month, points are a bet on time: the longer you keep the loan, the more those monthly savings add up, and the better the bet looks. Keep the loan only a short while and you never recover the upfront cost.
The break-even math
The calculator compares the monthly payment at your two rates, then divides the cost of the points by the monthly savings:
If points cost $8,000 and lower your payment by about $132 a month, you recover the cost in roughly 61 months — just over five years. Stay past that, and the rest is savings; over a full 30-year term the same buy-down can save tens of thousands in interest.
A worked example, step by step
Say you're borrowing $400,000 on a 30-year fixed mortgage. Your lender quotes 6.75% with no points, or 6.25% if you pay $8,000 upfront for two discount points. Here's how the break-even math plays out — these are the same numbers loaded into the calculator above by default.
- Step 1 — payment without points. At 6.75% over 360 months, the principal-and-interest payment on $400,000 comes to about $2,594.39 a month.
- Step 2 — payment with points. At 6.25%, the same loan amount and term costs about $2,462.87 a month.
- Step 3 — monthly savings. Subtract the two: $2,594.39 − $2,462.87 = $131.52 saved every month by buying the rate down.
- Step 4 — break-even point. Divide the $8,000 cost by the $131.52 monthly savings: $8,000 ÷ $131.52 ≈ 60.8 months, or just over 5 years. That's the month your cumulative savings finally cross the amount you paid upfront.
- Step 5 — lifetime interest, if you keep the loan to term. Over 30 years, the no-points loan costs about $533,981 in total interest; the points loan costs about $486,633 — a gross difference of $47,348. Subtract the $8,000 you paid for the points and you're left with roughly $39,348 in net savings, provided you never sell or refinance.
Change any one input — a shorter hold, a smaller rate difference, a higher points cost — and the break-even month moves accordingly. That's exactly what the calculator above recalculates instantly when you adjust the numbers.
When points are — and aren't — worth it
- Worth it: you'll keep the loan well beyond the break-even point, you have cash to spare at closing, and you're confident you won't refinance soon.
- Not worth it: you might move or refinance within a few years, or you'd rather put that cash toward your down payment to shrink the loan or avoid PMI.
It's also worth comparing points against simply making a larger down payment or keeping the cash in reserve. The right answer depends on how long you'll hold the loan and what else the money could do.
Frequently asked questions
How much does one point lower my rate?
There's no fixed amount — it varies by lender and market conditions, often around 0.25% per point but sometimes more or less. Use the two rates your lender actually quotes rather than a rule of thumb.
Are points the same as a larger down payment?
No. A larger down payment reduces the loan balance; points reduce the interest rate. Both lower your payment, but points only pay off if you keep the loan long enough to recover the upfront cost.
Can I deduct points on my taxes?
Sometimes, depending on whether it's a purchase or refinance and your tax situation. This calculator doesn't model taxes; ask a tax professional about your specifics.
How many mortgage points should I buy?
There's no universal number — it depends on how much cash you have at closing, how long you expect to keep the loan, and what your lender charges per point. Run each option (0, 1, 2 points) through this calculator and compare the break-even months against how long you actually plan to stay in the home or keep the loan.
What if I sell or refinance before the break-even point?
You lose money on the points. If you sell or refinance before the break-even month, the monthly savings never add up to more than what you paid upfront, so the points end up being a net cost rather than a benefit.
Do points always cost 1% of the loan amount?
One point is defined as 1% of the loan amount by convention, but how much rate reduction you get per point isn't fixed — it depends on the lender, the loan program, and market pricing that day. Always compare the actual Loan Estimate rather than assuming a standard rate-per-point.
Can the seller or builder pay for my points?
Yes, in many purchase transactions a seller or builder can pay some or all of the points as a concession, which changes the math in your favor since you didn't pay out of pocket. Ask your loan officer whether seller-paid points are allowed under your loan program and how they're documented.
Is buying points better than putting that cash toward a larger down payment?
It depends on your goals. A larger down payment reduces the loan balance and can help you avoid PMI, while points reduce the rate on whatever you borrow. If dropping below a loan-to-value (LTV) threshold like 80% is within reach, that cash might do more work as a down payment than as points — model both scenarios before deciding.