Mortgage Points Calculator: When Buying Down Your Rate Pays Off
Published 06/05/2026 by
Ante Mazalin
Summary:
A mortgage points calculator is a tool that shows whether paying discount points at closing saves you money, based on how long you keep the loan.
The answer always comes down to one comparison, built from a few inputs.
- Point cost: Each point is a fixed share of your loan amount, paid in cash at closing.
- Rate reduction: Each point lowers your interest rate by an amount the lender sets, so the same point buys more at some lenders than others.
- Break-even month: The point where accumulated monthly savings overtake what you paid upfront.
- Time in the loan: Stay past break-even and points profit; sell or refinance earlier and they lose.
Points are the rare closing-table decision with a precise right answer. One division problem tells you whether the lender’s offer is a discount or just prepaid interest you will never recover.
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How mortgage points work
A discount point costs 1% of your loan amount and permanently lowers your interest rate, typically by 0.125% to 0.25%, depending on the lender and the market. On a $400,000 loan, one point costs $4,000.
You are prepaying interest: cash now in exchange for a smaller payment every month for the life of the loan. Whether that trade wins depends entirely on how many months you keep the loan.
The math: finding your break-even point
The break-even formula is the point cost divided by the monthly savings. The table runs it for a $400,000 30-year loan where the no-points rate is 6.75% and each point buys 0.25% off.
| Scenario | Rate | Monthly payment | Upfront cost | Break-even | Net savings if held 30 years |
|---|---|---|---|---|---|
| No points | 6.75% | $2,594 | $0 | n/a | Baseline |
| 1 point | 6.50% | $2,528 | $4,000 | 60 months | $19,803 |
| 2 points | 6.25% | $2,463 | $8,000 | 61 months | $39,348 |
The pattern to remember: at a 0.25% reduction per point, break-even lands right around five years. Stay 10 or more years and points roughly double your money; leave at year three and you eat the loss.
The catch is that 0.25% per point is not guaranteed. Some lenders price a point at 0.125%, which doubles the break-even to roughly 10 years and quietly makes points a bad deal for most buyers.
How to decide whether to buy points
Five steps turn a Loan Estimate into a clear yes or no.
- Find the rate with zero points and the rate with one point on your Loan Estimate, and note the dollar cost of the point.
- Calculate the monthly payment at each rate, principal and interest only.
- Divide the point cost by the monthly savings. That is your break-even in months.
- Compare break-even to how long you realistically expect to keep the loan, counting a future refinance as leaving the loan.
- If break-even is shorter than your stay, buy the points. If not, keep the cash or use it for a larger down payment.
Points vs. lender credits vs. bigger down payment
The same closing-table cash can buy points, stay in your pocket through lender credits, or grow your down payment. Each option wins under different conditions.
| Discount points | Lender credits | Bigger down payment | |
|---|---|---|---|
| Cash at closing | More | Less | More |
| Interest rate | Lower | Higher | Unchanged |
| Monthly payment | Lower | Higher | Lower |
| Best when | Staying past break-even | Short stay or tight on cash | Avoiding mortgage insurance |
Lender credits are points in reverse: the lender pays your closing costs and you accept a higher rate. They win for buyers who expect to move or refinance within a few years, exactly the situation where points lose.
If your down payment sits just under 20%, putting the cash there instead can remove private mortgage insurance entirely, a guaranteed saving that usually beats the rate reduction from points.
Pro Tip: Points paid on a home purchase are generally tax-deductible in the year you pay them if the loan is on your primary residence and you itemize, per IRS Topic 504. Points paid on a refinance must instead be deducted in equal slices over the life of the loan, which weakens the after-tax case for paying points when refinancing.
When points make sense, and when they don’t
Points fit buyers with settled plans: a long-term home, a stable rate environment, and spare cash after the down payment and emergency fund are covered.
They fit poorly in three cases:
- You may move or refinance within five years. Most one-point offers need about that long just to break even.
- Rates are likely to fall. A refinance resets your rate and erases the value of points you already paid.
- The cash has a better job. Killing mortgage insurance, paying down high-interest debt, or keeping an emergency fund intact all beat a 0.25% rate discount.
The points decision is really a question about your next five to ten years, not your mortgage. Sense AI, the AI assistant in the SuperMoney app, helps you test what spending that cash at closing does to the rest of your financial picture.
Key takeaways
- One discount point costs 1% of the loan and typically buys a 0.125% to 0.25% rate reduction.
- Break-even equals point cost divided by monthly savings. At 0.25% per point, that is about five years.
- On a $400,000 loan held 30 years, one point nets $19,803; sold at year three, it loses money.
- Lender credits are the same trade in reverse and win when you expect to leave the loan early.
- Purchase points are usually deductible the year you pay them; refinance points spread over the loan term.
FAQ
How much does one mortgage point lower your rate?
Typically 0.25%, but lenders set their own pricing and 0.125% per point is common. The only number that matters is the one on your Loan Estimate, so compare the with-points and without-points offers directly.
How much does a mortgage point cost?
One point costs 1% of the loan amount: $3,000 on a $300,000 loan, $4,000 on a $400,000 loan. Lenders also sell fractional points in halves and quarters.
Are mortgage points tax-deductible?
Points on a purchase loan for your primary residence are generally deductible in the year paid if you itemize and meet IRS Topic 504 conditions. Points on a refinance must be deducted in equal amounts over the life of the loan.
How do I calculate my break-even point?
Divide the cost of the points by the monthly payment savings. If $4,000 in points saves $66 per month, break-even is about 60 months, so the points only pay off if you keep the loan past five years.
What are negative points or lender credits?
Lender credits are the reverse trade: the lender covers some closing costs and charges you a higher rate. They make sense for buyers short on cash or planning to sell or refinance within a few years.
Can I buy points on a refinance?
Yes, and the break-even math works the same way. The tax treatment differs, since refinance points are deducted over the loan term rather than in the first year.
Points only sweeten a rate that is already competitive. Comparing home loan offers from multiple lenders first ensures you are buying down the best available rate, not paying extra to fix an overpriced one.
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