What this calculator does
Find out whether paying for mortgage points is worth it, and how long they take to pay for themselves. Discount points let you pay some interest up front. In return, you get a lower rate for the whole life of the loan. Each point costs 1% of the loan amount, and the lender tells you how much each point lowers the rate.
Whether that trade is worth it comes down to one question. Will you keep the loan long enough for the monthly savings to pay back what you spent?
Enter the loan, the rate without points, the number of points and how much each one lowers the rate. The calculator shows the cost, both monthly payments, the monthly saving and the break-even point in months. Add how long you expect to keep the loan, and it also shows your net benefit. That counts the payment savings plus the smaller balance you'll owe when you sell or refinance.
Where it's used
Why this math matters outside the classroom:
- Home buyers. A buyer compares paying $6,000 for 2 points with keeping the cash, and sees a break-even after about 61 months.
- Refinancing decisions. A homeowner planning to move in four years checks whether points on a new loan would pay off before then.
- Loan officer explanations. A loan officer shows a borrower how a quarter-point lower rate changes the payment on a $300,000 loan.
- Personal finance classes. Students use the annuity payment formula at two rates and divide the cost of points by the difference.
Grade level and standards: Grades 11–12; Common Core State Standards for Mathematics HSA.SSE.B.4. © Copyright 2010. National Governors Association Center for Best Practices and Council of Chief State School Officers. All rights reserved.
How to use it
- Enter the loan amount, the interest rate with no points and the loan term.
- Enter the number of points you're considering. Then enter how much each point lowers the rate, from your lender's quote.
- If you like, enter how many years you expect to keep the loan before selling or refinancing.
- Compare the break-even point with how long you plan to keep the loan. Then check the yearly table for the net benefit over time.
What the inputs mean
- Points to buy
- One point is 1% of the loan amount. Lenders often quote fractions, such as 0.5 or 1.375 points.
- Rate reduction per point
- How much one point lowers the rate. It differs between lenders and loans. So use the figure from your loan estimate rather than a rule of thumb.
- Years you expect to keep the loan
- How long until you expect to sell or refinance. Points only pay off if you keep the loan past the break-even point.
Formula and method
points cost = points ÷ 100 × loan amount new rate = base rate − points × reduction per point monthly payment = P × i ÷ (1 − (1 + i)^−n), with i = annual rate ÷ 12 break-even months = points cost ÷ (old payment − new payment) net benefit after m months = m × monthly saving + (old balance − new balance) − points cost
P is the loan amount, i is the monthly interest rate and n is the number of monthly payments. m is the number of months you keep the loan. The base rate is your rate with no points.
Both payments come from the standard formula for a fixed-rate loan. It finds the one monthly amount that pays off the loan, with interest, in exactly n payments. The difference between the two payments is your monthly saving from the lower rate.
The simple break-even divides the upfront cost by the monthly saving. It's a little cautious, because a lower rate also pays the balance down a bit faster. The net benefit adds that difference in what you still owe, which you keep when you sell or refinance. So it's the fuller measure of whether the points paid off.
Worked example
You're borrowing $300,000 for 30 years at 6.75%. You can buy 2 points, each lowering the rate by 0.25%. You expect to keep the loan for 10 years.
- Cost of the points: 2% × $300,000 = $6,000.
- New rate: 6.75% − 2 × 0.25% = 6.25%.
- Monthly payment: $1,945.79 at 6.75% and $1,847.15 at 6.25%, a saving of $98.64 a month.
- Break-even: $6,000 ÷ $98.64 ≈ 60.8 months, or about 5.1 years.
- After 10 years: 120 × $98.64 = $11,837.12 of payment savings, plus a balance $3,189.86 lower, minus $6,000. That's a net benefit of about $9,026.98.
Result: The points pay for themselves after about 60.8 months. They're worth about $9,026.98 if you keep the loan for 10 years.
Understanding the result
If you expect to keep the loan well past the break-even point, points usually pay off. The benefit keeps growing every month after that.
You might sell, refinance or pay the loan off early, before the break-even. Then the points cost more than they save. In the example, selling after 3 years would leave you about $1,484.90 behind.
The money for points could go toward a bigger down payment, closing costs or savings instead. A bigger down payment can also lower your costs, for example by avoiding mortgage insurance. So compare the options rather than looking at points alone.
Assumptions and limitations
- A fixed-rate loan with monthly payments that pay it off completely by the end of the term, and no extra payments.
- Future savings aren't shrunk to today's value (the idea that money now is worth more than money later), and taxes aren't considered.
- The rate reduction per point is exactly what you enter, and it's the same for every point.
- Lenders price points one loan at a time. This calculator uses your inputs and isn't a rate quote.
- Any tax deduction for points isn't included. Neither is the return you could earn on the money elsewhere.
- It doesn't model adjustable-rate loans, lender credits (negative points) or points paid with money from the seller.
Frequently asked questions
How much does one mortgage point lower the rate?
It depends on the lender, the loan type and the market. A drop of around a quarter of a percentage point per point is often quoted, but the real figure can be smaller or larger. Your loan estimate shows the rate with and without points. That's the number to use here.
When is buying points a good idea?
When you're confident you'll keep the loan longer than the break-even period. You should also have cash to spare after the down payment, closing costs and an emergency fund. Points make less sense if you expect to move or refinance within a few years.
Why is the net benefit bigger than just the payment savings?
With a lower rate, more of each payment goes to principal (the amount you borrowed). So after a few years you owe less than you would on the higher-rate loan. That lower balance is money you keep when you sell or refinance. So the calculator counts it alongside the monthly savings.
Are points the same as origination fees?
No. Discount points buy a lower rate. Origination fees pay the lender for setting up the loan and don't change the rate, even if they're also shown as a percent of the loan. Check your loan estimate to see which is which.
How this calculator is checked
Method: Level-payment (annuity) formula for fixed-rate mortgages with monthly compounding; remaining balance in closed form; simple break-even as cost ÷ monthly saving. Payments checked against published amortization-table values. The calculation is covered by automated tests with known reference values and edge cases. Last updated 2026-10-18. Found a problem? Tell us.
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