Mortgage Points Cost Calculator
Calculate mortgage discount points cost and breakeven months. Each point typically costs 1% of loan amount and reduces rate by 0.25%. The math reveals whether to buy points or pay more interest over time.
What Are Mortgage Discount Points?
Discount points are upfront fees you pay the lender at closing to LOWER your interest rate. One point = 1% of loan amount. Each point typically reduces rate by 0.25% (varies by lender, term, and rate environment). Example: $400K loan, 1 point = $4,000 upfront, rate drops from 7.0% to 6.75%. Lower monthly payment + lower interest paid over loan life — but only if you stay long enough to recoup.
The Breakeven Calculation
Breakeven months = Cost of points ÷ Monthly payment savings. $4,000 upfront ÷ $66/month savings = 60 months to breakeven. If you stay in the home 60+ months, points pay off. Sell or refinance earlier = you lose the upfront cost. Most homeowners stay 7+ years (84+ months), so points often make sense. But job mobility or planned upsizing in 3-5 years = don't buy points.
When Points Beat Other Investments
Points effectively earn a return equal to your mortgage rate. Buying $4K of points to save $792/year = 19.8% return — assuming you stay full loan term. Hard to beat that in any safe investment. Even if you only stay 7 years: 7 × $792 = $5,544 saved vs $4K upfront = 38% return. Points often beat refinancing later because: (1) closing costs avoided, (2) starts saving immediately, (3) locks in current rate.
Tax Deductibility of Points
Points on PURCHASE of primary residence are fully deductible in year paid IF they meet IRS conditions (loan secured by home, customary in area, paid for use of money). Points on REFINANCE must be amortized over loan term (deduct fraction each year). Investment property points: amortize. Most points pass the purchase test — deduct in year paid. Schedule A itemized deduction.
Sources: CFPB Closing Cost Disclosure, IRS Pub 936 (Home Mortgage Interest). Last updated: May 2026.