Understanding your points breakeven result
Whether points are worth buying depends on comparing the breakeven month against the expected holding period for the loan, not on the size of the rate reduction alone.
| Expected holding period vs. breakeven | Typical outcome |
|---|---|
| Sell or refinance before the breakeven month | Points cost more upfront than the monthly savings recovered — a net loss under this comparison |
| Hold the loan well past the breakeven month | Accumulated monthly savings exceed the upfront cost — a net gain under this comparison |
| Uncertain how long the loan will be held | A shorter breakeven period carries less risk of not recovering the upfront cost |
- The rate reduction per point is a lender- and program-specific figure, not a fixed industry standard; this calculator's default is only a commonly cited approximate starting point and should be replaced with the figure quoted on an actual Loan Estimate.
- This calculator compares the same loan amount and term at two different rates. It does not model the opportunity cost of the cash used to buy points (for example, investing that money elsewhere instead), which is a separate consideration some borrowers weigh.
- Points are generally more likely to make sense for a borrower confident they will hold the loan for many years without refinancing or selling; the CFPB advises factoring in the realistic likelihood of an early sale or refinance before purchasing points.
What are mortgage discount points?
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 point reduces the rate is set by the lender and varies by loan program, market conditions and the specific offer — there is no single fixed industry number. A commonly cited approximate figure is around 0.25 percentage points of rate reduction per point, but this figure is lender-specific and should always be confirmed on the actual Loan Estimate for a specific offer rather than assumed; this calculator treats the rate reduction per point as an adjustable input for exactly that reason.
Because points cost money upfront but save money every month afterward, the value of buying points depends entirely on how long the loan is held. A borrower who refinances or sells before the breakeven month has paid more for the points than they saved; a borrower who keeps the loan well past breakeven comes out ahead.
How to use this mortgage points calculator
- Enter the loan amount (principal).
- Enter the interest rate the lender would charge without buying any points.
- Enter the number of discount points you are considering purchasing.
- Enter the rate reduction per point offered by your specific lender — check the Loan Estimate for this figure rather than assuming a generic value, since it varies by lender and program.
- Enter the loan term in years.
- Read the cost of the points, the reduced rate and monthly savings, the breakeven month, and the projected net savings if the loan is held to maturity.
The formula behind points and breakeven
The cost of points is a straightforward percentage of the loan amount. The reduced rate subtracts the rate reduction per point, multiplied by the number of points, from the base rate. Monthly savings is the difference between the standard-rate payment and the reduced-rate payment, both calculated with the standard amortization formula over the same term.
The breakeven month is the cost of the points divided by the monthly 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. Net lifetime savings, if the loan is held to full maturity, is the monthly savings multiplied by the total number of payments, minus the upfront cost of the points.
Common mistakes
- Assuming every lender reduces the rate by the same amount per point — the rate reduction per point is set by the lender and varies by program, so it should be confirmed from an actual Loan Estimate.
- Buying points without estimating the breakeven month, then selling or refinancing before that point is reached, which results in paying more for the points than was saved.
- Confusing discount points (which lower the rate) with origination points or lender fees (which do not) — only discount points are modeled by this calculator's rate-reduction logic.
- Ignoring that the cash used to buy points has an opportunity cost — it could otherwise cover closing costs, a larger down payment, or be invested elsewhere.
- Treating the breakeven month as a guarantee rather than a projection based on the entered rate, term and points figures — an early refinance changes the actual outcome.
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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?
The breakeven point is the number of months it takes for accumulated monthly payment 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. Holding the loan past that month means the points have paid for themselves under the calculation.
When do mortgage points make sense to buy?
Points tend to make more sense for borrowers who are confident they will hold the loan for a long period without refinancing or selling, since the upfront cost needs enough time afterward for the monthly savings to accumulate past the breakeven month. A short expected holding period makes points a riskier upfront expense relative to the savings likely to be realized.
Are mortgage 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 here.
Kaynaklar
- 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.