What a mortgage discount point costs and does
A mortgage discount point is an upfront fee paid at closing, conventionally priced at 1% of the loan amount per point, in exchange for a reduction in the loan's interest rate. The Consumer Financial Protection Bureau (CFPB) describes discount points as a way to 'buy down' the rate: the borrower pays more upfront so the lender charges less over the life of the loan.
How much a single point reduces the rate is set by the lender and varies by loan program and market conditions -- there is no single fixed industry figure. An approximate 0.25 percentage-point reduction per point is commonly cited as a starting reference, but the actual figure for any specific offer should always be confirmed on the lender's Loan Estimate rather than assumed.
The breakeven-month calculation
The breakeven point is the standard test for whether points can pay for themselves: it is calculated as the cost of the points divided by the monthly payment savings, rounded up to the next whole month since a partial month of savings does not fully recover the cost until the following full month. A borrower who sells or refinances before the breakeven month has paid more for the points upfront than the reduced rate saved them; a borrower who keeps the loan well past that month comes out ahead under the comparison.
This calculation isolates the value of the rate reduction alone by comparing the same loan amount and term at two different rates. It does not account for the opportunity cost of the cash used to buy the points -- for example, investing that money elsewhere instead -- which is a separate consideration some borrowers weigh alongside the breakeven month itself.
Worked example: 1 point on a $300,000 loan at 6.5%
Consider a $300,000, 30-year loan with a base rate of 6.5% without any points. Buying 1 point costs $300,000 x 1% = $3,000 and, at a lender-quoted reduction of 0.25 percentage points per point, lowers the rate to 6.25%.
Using the standard amortization formula, the payment at the 6.5% base rate is $1,896.20 per month, and the payment at the reduced 6.25% rate is $1,847.15 per month -- a monthly saving of $49.05. The breakeven point is $3,000 / $49.05 = 61.16 months, rounded up to the 62nd month; if the loan is held to its full 30-year (360-month) maturity, the projected net savings after accounting for the $3,000 cost is approximately $14,658.89.
| Item | Value |
|---|---|
| Base rate payment (6.5%) | $1,896.20 |
| Reduced rate payment (6.25%, after 1 point) | $1,847.15 |
| Monthly savings | $49.05 |
| Cost of 1 point | $3,000 |
| Breakeven point | 62nd month |
| Net savings if held to 360-month maturity | ≈ $14,658.89 |
Why the breakeven horizon matters
Whether buying points makes sense depends entirely on how long the loan is actually held relative to the breakeven month, not on the size of the rate reduction alone -- a large rate reduction bought with a high point cost can still have a long breakeven period, while a modest reduction on a smaller loan amount might break even quickly. In the worked example, a borrower confident they will hold the loan well beyond 62 months stands to gain from the point; a borrower who expects to sell or refinance sooner would likely pay more for the point than they recovered in savings.
Because the realistic holding period is uncertain for many borrowers -- job changes, family circumstances, and market conditions can all prompt an earlier sale or refinance than planned -- the CFPB advises weighing the likelihood of an early exit against the projected breakeven month before purchasing points, rather than assuming the loan will be held to full maturity.
Points versus a larger down payment
Buying points and making a larger down payment are different levers with different mechanisms: a discount point reduces the interest rate on a fixed loan amount, while a larger down payment reduces the loan amount itself, lowering both the monthly payment and the total interest paid without needing to reach any breakeven month, since a smaller loan simply costs less to service from the first payment onward. The cash required for either strategy comes from the same pool of funds available at closing, so choosing between them is a direct trade-off for a borrower with a fixed amount of extra cash available.
Because a larger down payment reduces the loan amount immediately with no future breakeven requirement, it does not carry the same forward-looking risk that an early sale or refinance could leave the cost unrecovered, which is the exposure inherent to buying points. Borrowers with a fixed amount of extra cash available at closing should compare the breakeven-adjusted savings from points against the immediate, unconditional payment reduction a larger down payment would produce.
Questions fréquentes
What is a mortgage discount point?
A mortgage discount point is an upfront fee paid at closing, conventionally equal to 1% of the loan amount, in exchange for a lower interest rate on the loan. The Consumer Financial Protection Bureau describes this as 'buying down' the rate -- paying more upfront in exchange for a lower rate, and therefore a lower payment, for the life of the loan.
How much does one point reduce my interest rate?
There is no single fixed industry figure -- the rate reduction per point is set by the lender and varies by loan program and market conditions. An approximate 0.25 percentage-point reduction per point is commonly cited as a starting reference, but the actual figure for a specific loan should be confirmed on the lender's Loan Estimate.
What is the breakeven point on mortgage points, and how is it calculated?
The breakeven point is the number of months it takes for accumulated monthly savings from the reduced rate to equal the upfront cost of the points, calculated as points cost divided by monthly savings, rounded up to a whole month. In a worked example with $3,000 of points cost and $49.05 of monthly savings, the breakeven point falls in the 62nd month.
Is a $3,000 point on a $300,000 loan worth it?
It depends on how long the loan will be held. In the worked example, the point breaks even in the 62nd month; a borrower confident they will keep the loan well beyond that point stands to gain roughly $14,658.89 net if held to full 30-year maturity, while a borrower likely to sell or refinance sooner may not recover the upfront cost.
Should I buy points or make a bigger down payment instead?
A discount point reduces the interest rate on a fixed loan amount and requires holding the loan past a breakeven month to pay off, while a larger down payment reduces the loan amount itself immediately, lowering the payment and total interest from the first month with no breakeven requirement. Borrowers with a fixed amount of extra cash should compare the breakeven-adjusted savings from points against the unconditional reduction a larger down payment provides.
Are discount points the same as origination points?
No. Discount points reduce the interest rate and are the type of point this calculator models. Origination points are a separate fee some lenders charge to cover the cost of processing the loan and do not reduce the rate, so they are not part of the breakeven comparison described here.
Références
- Consumer Financial Protection Bureau (CFPB). What are (discount) points and lender credits and how do they work? consumerfinance.gov.
- Consumer Financial Protection Bureau (CFPB). Your Home Loan Toolkit — a step-by-step guide to shopping for a mortgage. consumerfinance.gov.
- Consumer Financial Protection Bureau (CFPB). Explore interest rates and how points affect them. consumerfinance.gov.
- Freddie Mac. Understanding mortgage options and loan types. freddiemac.com.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance (13th ed.). McGraw-Hill, 2020. Chapter 2: How to Calculate Present Values.