Mortgage Points Break-Even Calculator
Find out whether paying for discount points on your mortgage makes sense. Enter your loan, base rate, cost of the points, and new rate. The calculator shows monthly savings, break-even month, and total savings if you keep the loan to term.
What Are Mortgage Discount Points?
Discount points are prepaid interest paid at closing in exchange for a lower interest rate for the life of the loan. One point equals 1% of the loan amount, and typically buys down the rate by about 0.25% — though the exact reduction varies by lender and market. On a $400,000 loan, one point costs $4,000 upfront and might drop the rate from 7.25% to 7.00%.
How Break-Even Works
Break-even is the number of months it takes for your lower monthly payment to recover the upfront cost. If one point costs $4,000 and saves you $65/month, break-even is 4,000 ÷ 65 = 62 months (about 5 years). Pay points only if you will hold the loan longer than the break-even period, without refinancing or selling. Shorter holding periods mean you lose money on the points.
When Points Make Sense
Points work when you are certain to stay in the loan past break-even, when rates are historically low (no prospect of refinancing), and when you have extra cash at closing that would otherwise sit idle. Points also become attractive if you can afford a larger down payment but are already below the 80% LTV threshold — buying down the rate may give you more per-dollar value than additional equity.
Points vs Extra Principal Payments
Instead of paying $4,000 for a point, some borrowers apply that same $4,000 as an extra principal payment. This shortens the loan and saves interest but does not reduce the monthly payment or change the rate. Points lower the monthly obligation for life, while extra principal accelerates payoff. For cash-flow-focused borrowers, points usually win; for payoff-focused borrowers, extra principal often wins.