Mortgage Points Calculator

Paying cash today to owe less every month

Mortgage points are a trade. You hand the lender cash at closing, and in return they give you a lower interest rate for the life of the loan.

One point costs 1 percent of the loan. On a 400,000 mortgage that is 4,000, paid up front, and it buys you a rate reduction that the lender decides.

Which turns a rate question into a timing question. The lower rate saves you a small amount every month forever, and the cash is gone immediately. So the whole thing comes down to whether you stay long enough for the small monthly savings to add up to the large upfront cost. That crossing point is called the break-even, and finding it is what this calculator is for.

Five boxes, and where to get the numbers

1. Mortgage Amount. What you are borrowing. Points are priced off this figure.
2. No points, annual interest rate. The rate the lender offers with zero points.
3. Loan Term. Years or months, using the dropdown beside it.
4. With points, annual interest rate. The rate you get after buying the points.
5. Number of Points Paid. How many you are buying. Fractions are fine, so 0.5 and 1.75 both work.

Two of those you have to go and ask for, and this is deliberate. The calculator does not assume how much rate a point buys, because there is no standard. The Consumer Financial Protection Bureau is explicit that the reduction depends on your lender, your loan type and market conditions. You will see 0.25 percent per point quoted as a rule of thumb, and it is only a rule of thumb.

So ask your lender the direct version: what is your best rate with zero points, and what is the rate if I buy one. Then put those two numbers in. A tool that guesses the reduction for you is guessing about the only part of the deal that varies.

The one number the whole decision turns on

The output table has seven rows, and row F is the one that matters. It is the number of months before the money you saved catches up with the money you spent.

The arithmetic is a single division:

Break-even months = upfront cost ÷ monthly saving

Upfront cost is the mortgage amount multiplied by the points, divided by 100. Monthly saving is the difference the lower rate makes to your payment. Divide one by the other and you have the month you cross into profit.

That is the same method the CFPB describes, which is worth saying out loud, because break-even calculations are the sort of thing where everybody quietly does something slightly different and nobody shows their working.

The table then reads the result back to you in years and months, and tells you plainly if the break-even lands beyond the end of the loan, which happens more often than you might expect on short terms.

Two ways to work out the saving, one answer

There is a small piece of algebra in here that is quite satisfying, so here it is.

You could work out your monthly saving the obvious way: calculate the payment at the higher rate, calculate it at the lower rate, subtract. Simple.

Or you could do it the long way round: work out total interest across the whole term at both rates, take the difference, and divide by the number of months to get an average saving per month.

Those sound like different quantities. The first is what you save in any given month, the second is an average across the term. On most problems an average and an actual are not the same thing at all.

Here they are identical, and you can see why in one line. Total interest is the payment multiplied by the number of months, minus the loan. Do that for both rates and subtract, and the loan amount cancels, leaving the payment difference multiplied by the number of months. Divide by the number of months and you are back to the payment difference exactly.

So both routes give the same figure to the last cent. Which is a nice reassurance rather than a curiosity, because it means the break-even in row F does not depend on which of the two definitions the tool happened to pick.

One point on a 400,000 loan

Take a 400,000 mortgage over 30 years. The lender offers 6.5 percent with no points, or 6.25 percent if you buy one point.

The monthly saving is 65.40. Divide 4,000 by 65.40 and you get 61 months, which is five years and one month.

So the decision reduces to a question you can actually answer: will you still have this mortgage in five years and one month?

Stay longer and the point pays. Across the full thirty years the interest saved is 23,545, so after subtracting the 4,000 you are ahead by 19,545. Move or refinance in year three and you paid 4,000 to save about 2,350, and you are down.

Notice the shape of it. The upside is large and slow, the downside is small and fast. That is the character of every points decision, and it is why the question is always about how long you stay rather than about how good the rate looks.

Why buying more points barely moves the break-even

Here is something the table shows you that surprises most people the first time.

Same 400,000 loan over 30 years, and the lender prices points at a steady 0.25 percent each:

Doubling the points doubles the cost and very nearly doubles the saving, so the ratio between them barely shifts. Sixty one months, sixty one months, sixty two months.

Which means the break-even is not really telling you how many points to buy. It is telling you whether points suit your situation at all. If five years is comfortably inside your plans, more points are better. If it is not, no quantity of points helps, and half a point is just a smaller version of the same bad trade.

One thing to watch. Lenders do not always price every point at the same reduction. The first point often buys more rate than the third. Run each option with the actual quoted rates rather than assuming the pattern holds, and the table will show you where the pricing stops being generous.

The fee that looks like a point and is not

This is the mistake most likely to give you a wrong answer here, and it is an easy one to make.

Two different things sit near each other on a Loan Estimate, both quoted as a percentage of the loan, both paid at closing.

• Discount points buy you a lower interest rate. They are what this calculator is about. Under the disclosure rules, anything itemised as points has to actually earn you a reduced rate.
• Origination charges are what the lender charges to make the loan. They buy you nothing except the loan itself.

Both appear in Section A on page two of a US Loan Estimate, which is why they get muddled. If you enter your origination fee in the points box, the calculator adds it to the upfront cost while your rate reduction stays where it was, and the break-even stretches out to something that looks much worse than the actual deal.

So the test is simple. Did this charge lower my rate? If yes, it belongs in the points box. If no, it is a cost of the loan and belongs in your closing cost total instead, where it can be weighed against what other lenders charge.

Who ends up paying points

Points went from a niche option to a mainstream one over the last few years, and the pattern in the data is worth knowing before you decide.

Looking at mortgage disclosure data from 2019 through 2023, the CFPB found that the majority of recent borrowers paid discount points, and that among cash out refinances it was close to nine in ten. More borrowers bought points as rates climbed, and borrowers with lower credit scores were more likely to buy them.

That last finding is the one to sit with. When rates are high and your credit is thin, the quoted rate hurts, and points are the lever that makes the payment look manageable again. The lever works. It also converts cash you have now into a saving you only collect if you stay.

The CFPB has been watching this precisely because the trade-offs are more complicated than the headline rate suggests. Which is not an argument against points. It is an argument for running your own break-even rather than taking the payment reduction at face value.

Three things that undo the maths

Refinancing. The break-even assumes you keep this loan. Refinance in year three and the lower rate stops, while the 4,000 stays spent. If rates are historically high when you buy, the odds of refinancing sooner are higher, and that shortens the horizon the points need to survive.

Moving. Same problem, different cause. The break-even is a question about the loan, not the house, but selling ends the loan.

What else the cash could do. Four thousand spent on points is four thousand not in an emergency fund, not clearing a credit card at a much higher rate, and not added to the down payment where it might have moved you under a mortgage insurance threshold. The table cannot see any of that. Compare the break-even against those alternatives before you commit.

There is also the tax question, which cuts the other way in some countries. Points on a home purchase may be deductible, which effectively lowers the true upfront cost and shortens the real break-even. Rules vary and change, so that one is worth checking with someone who does tax for a living.

Questions people ask

What does one point cost?

One percent of the loan amount, paid at closing. On a 400,000 mortgage that is 4,000. Fractions are common, so half a point on the same loan is 2,000.

How much rate does a point buy?

It depends on the lender, the loan type and market conditions, and there is no fixed figure. A quarter of a percentage point is the usual rule of thumb. Ask your lender for the actual rate with and without points and enter both.

What is a typical break-even?

Frequently around five years, though it varies with the rate reduction on offer. In the worked example above it is 61 months. If you expect to keep the loan well past that point, the points pay off.

Should I buy more points to break even sooner?

It does not work that way. Doubling the points roughly doubles both the cost and the saving, so the break-even barely moves. Points either suit your timeline or they do not.

Are origination fees the same as points?

No. Discount points buy a lower rate. Origination charges are the lender's fee for making the loan and buy no reduction at all. Only enter charges that lowered your rate.

What if the tool says it never breaks even?

That means the rate entered for the points option is not actually lower than the no points rate, so there is no saving for the upfront cost to recover. Check the two rate boxes are the right way round.

What if the break-even is longer than my loan?

Then the points cannot pay for themselves, even if you keep the loan to the very end. It happens on short terms, where there are simply not enough months of saving to recover the cost.

Do I get my points back if I refinance?

No. They are spent at closing. Refinancing early is the most common reason a points decision that looked good on paper does not pay.

References

The payment relation behind both columns is the standard actuarial amortisation equation set out in Regulation Z, with the annual rate treated as a periodic rate multiplied by the number of periods in a year. The break-even method used here, dividing the cost of the points by the monthly saving, follows the approach described by the Consumer Financial Protection Bureau, as does the point that the rate reduction per point is not standardised and the data on how many borrowers pay points.

1. Consumer Financial Protection Bureau (CFPB), Data Spotlight: Trends in Discount Points Amid Rising Interest Rates. https://www.consumerfinance.gov/data-research/research-reports/data-spotlight-trends-in-discount-points-amid-rising-interest-rates/
2. Consumer Financial Protection Bureau (CFPB), Regulation Z, Appendix J to Part 1026: Annual Percentage Rate Computations for Closed-End Credit Transactions. https://www.consumerfinance.gov/rules-policy/regulations/1026/j/
3. Consumer Financial Protection Bureau (CFPB), What Is the Difference Between a Mortgage Interest Rate and an APR? https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-mortgage-interest-rate-and-an-apr-en-135/
4. Consumer Financial Protection Bureau (CFPB), Regulation Z, § 1026.22 Determination of Annual Percentage Rate. https://www.consumerfinance.gov/rules-policy/regulations/1026/22/