Mortgage Points Calculator
Should you buy discount points to lower your mortgage rate? Find out how long it takes to break even.
Side-by-Side Comparison
Points Comparison Table
Breakeven Timeline
Understanding Mortgage Points
Mortgage discount points are a form of prepaid interest that you pay at closing in exchange for a lower interest rate on your loan. Each point costs 1% of your loan amount and typically reduces your rate by about 0.25%, though the exact reduction varies by lender and market conditions. For example, on a $315,000 loan, one point costs $3,150 and might drop your rate from 6.75% to 6.50%. Points are sometimes called "buying down the rate" and represent one of the few ways borrowers can directly negotiate the cost of their mortgage beyond shopping for the best base rate. The IRS generally considers discount points to be prepaid interest, which means they are usually tax-deductible in the year of purchase on a primary residence — a benefit that can effectively reduce the net cost of the points.
The breakeven calculation is the single most important factor in deciding whether to buy points. Divide the total cost of the points by the monthly payment savings to find how many months it takes to recover your upfront investment. If you plan to keep the loan past that breakeven point, every additional month represents pure savings. If you sell or refinance before reaching breakeven, you lose money on the deal. This is why the length of time you plan to keep the mortgage is the critical variable — not just the rate reduction itself. A lower rate sounds appealing, but it is only valuable if you hold the loan long enough to actually benefit from the reduced payments.
Buying points generally makes sense when you plan to stay in the home for seven or more years, you are confident you will not refinance (for example, because rates are already low relative to historical norms), and the rate reduction per point is meaningful — at least 0.25% per point. You should also have sufficient cash reserves after closing; points should not come at the expense of your emergency fund or force you into a smaller down payment that triggers private mortgage insurance. In some cases, negotiating seller-paid points (sometimes called a seller-paid rate buydown) can give you the benefit of a lower rate without tying up your own cash, making points essentially free to you as the buyer.
On the other hand, you should skip points if you plan to stay fewer than five years, if there is a reasonable chance you would refinance when rates drop (because refinancing resets your loan and eliminates the benefit of the original points), or if cash is tight and would be better used for a larger down payment to avoid PMI. In a competitive market, negotiating seller concessions toward a rate buydown can be more effective than asking for a price reduction — a 1% rate buydown often saves the buyer more over time than an equivalent dollar amount off the purchase price. Always run the numbers for your specific situation using a calculator like this one, and remember that points are just one piece of the overall mortgage cost picture alongside origination fees, third-party costs, and the base interest rate itself.