Mortgage Points Break-Even Calculator
Work out whether paying discount points is worth it: the monthly saving, the exact month you break even, and the lifetime interest the lower rate saves.
How to use this calculator
- 1Enter the loan amount, term, and the two rates your lender quoted with and without points.
- 2Enter the points charged — one point is 1% of the loan.
- 3Be realistic about how long you will keep the loan: the median US homeowner moves or refinances well inside ten years.
- 4Compare the break-even against that horizon. Longer than break-even and points pay; shorter and they do not.
How the calculation works
Cost = loan × points ÷ 100. Break-even months = cost ÷ (payment without points − payment with points)- point
- One percent of the loan amount, paid at closing to lower the rate
- break-even months
- How long the monthly saving takes to repay the up-front cost
The simple break-even ignores that money spent on points could have been invested, and that a lower rate also builds equity slightly faster. The net-position figure here accounts for the second effect by comparing payments made plus balance still owed.
Break-even is measured against how long you keep this specific loan, not how long you own the house. Refinancing resets everything, and a refinance is far more likely than a sale for most borrowers.
A temporary buydown — a 2-1 buydown, for instance — is a different product. It lowers the rate for the first year or two only, is usually seller-funded, and does not change the note rate at all.
Worked example
2 points to cut 6.75% to 6.25%
- 1.Two points on $400,000 costs $8,000 at closing.
- 2.The payment at 6.75% is about $2,594; at 6.25% it is about $2,463 — a saving near $131 a month.
- 3.$8,000 ÷ $131 ≈ 61 months, so break-even lands a little past five years.
- 4.Planning to keep the loan ten years, the points are comfortably worth it.
Result: Break-even around five years — worth it over ten
What points actually buy
A discount point is prepaid interest. You hand the lender one per cent of the loan at closing, and in exchange they reduce the note rate — typically by around a quarter of a percentage point per point, though the exchange rate varies by lender and by day.
The entire decision is a payback calculation. The cost is certain and immediate; the benefit arrives monthly and only continues while you hold the loan. Break-even is where those cross, and it usually lands somewhere between four and seven years on a thirty-year mortgage.
The mistake people make is comparing break-even against how long they expect to own the home. The relevant horizon is how long they will keep this loan, and refinancing ends it just as decisively as selling. Anyone buying at an elevated rate with an expectation of refinancing when rates fall is, in effect, planning to throw the points away.
Permanent points against a temporary buydown
These are frequently confused, and they are different products with different economics.
Discount points permanently lower the note rate for the life of the loan. You pay for them, and the benefit is yours as long as you keep the mortgage.
A temporary buydown — commonly a 2-1, where the rate is two points lower in year one and one point lower in year two before reverting — lowers only the first year or two of payments. The note rate never changes. These are usually funded by a seller or builder as a concession, which makes them attractive when someone else is paying, but they solve a cash-flow problem for a year or two rather than reducing the cost of the loan. If the buyer is funding it themselves, the money is almost always better spent on a permanent buydown or a larger down payment.
What this assumes, and where it stops
Assumptions
- The loan is fully amortising at a fixed rate, and the payment is principal and interest only.
- Points are paid in cash at closing rather than rolled into the loan.
- The rates entered are what the lender actually quoted for each option on the same loan.
- No tax effect is included — points may be deductible if you itemise.
Limitations
- The opportunity cost of the cash spent on points is not modelled — that money could have been invested or used to reduce the principal.
- Adjustable-rate loans are not handled; the comparison assumes a fixed rate throughout.
- Lender credits, which work in reverse by raising the rate to reduce closing costs, are not modelled.
- Deductibility of points depends on itemising and on whether the loan is a purchase or a refinance.
Common questions
Is buying mortgage points worth it?
It depends almost entirely on how long you keep the loan. Break-even is typically four to seven years on a thirty-year mortgage, so points pay off for someone who stays put and lose money for someone who sells or refinances sooner. The horizon that matters is the life of this specific loan, not how long you own the house — refinancing ends the benefit just as completely as selling does.
How much does one point lower my rate?
Usually around 0.25 percentage points, but there is no fixed rule and it varies by lender, loan type and market conditions. Some lenders offer a better exchange rate on the first point than on subsequent ones. Always ask for the actual quoted rate with and without points rather than assuming a ratio, and enter both figures here — the exchange rate you are being offered is what decides whether the deal is good.
What is the difference between discount points and a 2-1 buydown?
Discount points permanently reduce the note rate for the life of the loan. A 2-1 buydown temporarily reduces the payment for the first two years — two percentage points lower in year one, one in year two — and then the full note rate applies. Temporary buydowns are usually funded by a seller or builder as a concession, and they help with early cash flow rather than reducing the loan's overall cost.
Sources
- What are (discount) points and lender credits? — US Consumer Financial Protection Bureau
- Publication 936, Home Mortgage Interest Deduction — US Internal Revenue Service
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
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