Mortgage Points Break-Even Calculator

One mortgage point equals 1% of the loan amount paid upfront at closing in exchange for a lower interest rate. For example, paying two points on a $400,000 loan costs $8,000. Each point typically reduces the rate by 0.125% to 0.25%, depending on the lender and market. Points are usually tax-deductible for a primary residence in the year paid. Verify current deductibility rules with a tax advisor before closing.

Divide the upfront cost of the points by the monthly savings from the lower interest rate. For example, if paying $4,000 in points saves $60 per month in interest, the break-even point is 4,000 divided by 60, which equals about 67 months or 5.6 years. If you expect to keep the loan longer than the break-even period, buying points makes financial sense. Refinancing or selling before break-even means you lose money on the points.

Paying points makes sense if you have a long time horizon, a stable financial situation, and plan to keep the loan past the break-even date. A larger down payment reduces the loan balance and monthly payment and may eliminate PMI, which provides guaranteed savings from day one. If your down payment is below 20%, eliminating PMI often provides a better return per dollar than buying points. Run both scenarios before deciding.

No. Discount points are paid specifically to buy down the interest rate and are typically tax-deductible for a primary home purchase. Origination points or fees are charged by the lender to cover the cost of processing the loan and may or may not be deductible. Your Loan Estimate will itemize each type of fee separately. Always compare total loan costs, not just the interest rate, when evaluating lender offers.