What are mortgage points?

Discount points are upfront fees paid to the lender at closing in exchange for a lower interest rate over the life of the loan. One point costs 1% of the loan amount and typically lowers the rate by about 0.25 percentage points. They are a form of prepaid interest.

How do I know if points are worth it?

Calculate the break-even point: cost of points divided by monthly payment savings. If your planned holding period (years until you sell or refinance) is well beyond the break-even, points save money. If you might leave before break-even, skip them.

Are mortgage points tax-deductible?

Points paid on a primary-residence purchase loan are generally fully deductible in the year paid, under specific IRC §461(g) rules. Points on a refinance must be deducted evenly over the life of the loan. Consult a tax professional or IRS Publication 936 for your specific situation.

How much does one point reduce my rate?

Roughly 0.25 percentage points per discount point is a rule of thumb, but actual reductions vary by lender, loan program, and market conditions. Always look at the lender's actual pricing menu — the rate-to-point trade can be more or less generous than the rule of thumb suggests.

Are points the same as origination fees?

No. Discount points buy down the interest rate. Origination points are a flat fee charged by the lender or broker for processing the loan and do not change the rate. The Loan Estimate disclosure breaks them out separately.

Mortgage Points Calculator

Should you buy mortgage points to lower your rate? Calculate the upfront cost of points, monthly savings, break-even timeline, and total savings over the life of the loan. See whether buying points makes financial sense based on how long you plan to stay.

Discount points are prepaid interest. You hand the lender extra money at closing — typically 1% of the loan amount per point — and in exchange they lower your interest rate for the life of the loan. The trade is essentially a bet: you spend dollars today to save dollars every month, and the bet pays off only if you keep the loan long enough for the monthly savings to add up to more than the upfront cost.

The math is straightforward. Each point costs 1% of the loan, and a typical point reduces the rate by roughly 0.25%. On a $350,000 loan, two points cost $7,000 upfront and might lower the rate by 0.5%. The monthly payment drops, sometimes by $100 or more, and the break-even is the number of months it takes for those payment savings to recoup the $7,000.

This calculator does the comparison: payment without points vs. payment with points, total upfront cost, monthly savings, break-even month, and total interest saved over the period you plan to stay in the home. The answer hinges almost entirely on how long you actually keep the loan — and refinancing or selling resets the math.

Inputs

Loan Amount

Rate Without Points

Rate With Points

Points to Buy

1 point = 1% of loan amount

Loan Term (Years)

Plan to Stay (Years)

Results

Cost of Points

$7,000

Monthly Savings

$116

Break-Even

61 months

Net Savings (Stay Period)

$6,958

Monthly Payment Comparison

Net Savings Over Time

Year-by-Year Savings

Year	Cumulative Savings	Net Savings
1	$1,395.85	$-5,604.15
2	$2,791.70	$-4,208.30
3	$4,187.54	$-2,812.46
4	$5,583.39	$-1,416.61
5	$6,979.24	$-20.76
6	$8,375.09	$1,375.09
7	$9,770.93	$2,770.93
8	$11,166.78	$4,166.78
9	$12,562.63	$5,562.63
10	$13,958.48	$6,958.48

Last updated: May 25, 2026Reviewed by the CalcMountain editorial team

Formula

Cost of points: Cost = Loan × (Points / 100) Where one "point" equals 1% of the loan amount. Two points on a $350,000 loan cost $7,000. Monthly principal & interest at rate r: M = L × [ r_m × (1 + r_m)^n ] / [ (1 + r_m)^n − 1 ] Where: L = Loan amount r_m = Monthly rate (annual rate ÷ 12) n = Total payments (years × 12) Monthly savings from buying points: Δ = M(rate_without_points) − M(rate_with_points) Break-even point (months): Break-even = Cost / Δ Total savings over a planning horizon of Y years: Total Savings = (Δ × Y × 12) − Cost If Total Savings > 0, buying points is profitable over that horizon. Example: $350,000 loan, 30 years. Rate 7% without points; 6.5% with 2 points ($7,000). Monthly at 7%: $2,329 Monthly at 6.5%: $2,212 Savings: $117/mo Break-even: $7,000 / $117 ≈ 60 months (5 years) Stay 5 years: roughly break-even. Stay 10 years: net savings ≈ $7,040. Stay 30 years: net savings ≈ $35,120.

How to use this calculator

Enter the loan amount you are borrowing — the loan balance, not the home price.
Enter the rate the lender quotes with zero points (sometimes called the "par rate" or "base rate").
Enter the lower rate available if you buy points. This is usually quoted as a "rate sheet" — for example, 0.5% lower if you pay 2 points.
Enter the number of points (in tenths if needed). One point = 1% of the loan. Fractional points (0.5, 1.5) are common.
Set the loan term — almost always 30 years for purchase loans, though 15- and 20-year terms exist. The longer the term, the more total interest at stake.
Enter how long you actually expect to stay in the home before selling or refinancing. This is the most important input — it determines whether the break-even is meaningful.
Compare the break-even date to your "plan to stay" horizon. If break-even comes well before you plan to leave, points are profitable. If break-even comes close to or after your departure, skip the points.
Re-run with a shorter "plan to stay" to stress-test. Life happens — job change, growing family, divorce — and the median first-time buyer actually stays only 7–10 years.

Worked examples

Standard 2-point buy-down — moderate stay

$350,000 loan, 30-year, 7.0% without points / 6.5% with 2 points Cost of 2 points: $7,000 Monthly payment without points: $2,329 Monthly payment with points: $2,212 Monthly savings: $117 Break-even: 60 months (5 years) Net savings if you stay 10 years: $7,040 Net savings if you stay 30 years: $35,120 A clean case where points pay off — provided you actually stay past the 5-year break-even.

Short-horizon buyer — points lose

Same $350,000 loan, but you plan to relocate for work in 3 years. Cost of 2 points: $7,000 Monthly savings over 3 years: $117 × 36 = $4,212 Net result if you sell at year 3: − $2,788 (you lose $2,788) The math flips. At a 3-year horizon, the points cost more than they save. Even worse, if you refinance the same year because rates drop, the prepaid interest is gone and you have nothing to show for it.

Small fractional buy-down for tax benefit

$500,000 loan. 0.5 points to drop rate from 6.75% to 6.625% (1/8 point reduction). Cost: $2,500 Monthly savings: ≈ $42 Break-even: 60 months A small fractional buy-down can make sense if you have closing cash to spare and a long horizon, and the entire $2,500 is deductible in the year of purchase (under current IRC §461 rules for owner-occupied purchase loans). The deduction can offset some of the upfront cost depending on your marginal tax rate.

When to use this calculator

Use this calculator before locking in a rate or signing a loan estimate. Lenders typically present a "pricing menu" with several rate-and-point combinations — no points at one rate, 1 point at a lower rate, 2 points at a lower rate still — and the right choice depends on how long you'll actually keep the loan.

Buying points makes the most sense when: (1) you have ample closing cash beyond the down payment, (2) you intend to live in the home a long time (10+ years), (3) interest rates seem low enough that refinancing in the near future is unlikely, and (4) you're in a high tax bracket where the prepaid-interest deduction has real value.

Skip points when: you might sell within 5 years, you might refinance because rates could fall, you're stretching to make the down payment (the cash is better in reserve), or the break-even period exceeds half your planned holding time.

Pair this with the mortgage-payment calculator (to see the monthly payment of each combo), the closing-costs calculator (since points show up there), and the refinance calculator (to compare prepaid interest now vs. a future refinance later).

Common mistakes to avoid

Confusing discount points with origination points. Discount points reduce the interest rate. Origination points compensate the lender or broker and do not reduce the rate. Both cost 1% of the loan, but only discount points provide ongoing savings.
Forgetting that refinancing kills the value of points. The prepaid interest is gone the moment the loan is paid off — refinanced or sold. If rates drop 1% and you refinance two years in, the points you paid become a permanent loss.
Ignoring the alternative use of the cash. $7,000 in points vs. $7,000 added to the down payment (reducing the loan by $7,000) vs. $7,000 in a high-yield savings account are three different financial outcomes. Run the comparison both ways.
Using break-even on monthly savings alone. The break-even formula uses gross savings; the after-tax break-even is shorter if you can deduct mortgage interest. Run with and without the tax benefit if you itemize.
Trusting the lender's "1 point = 0.25% rate reduction" rule of thumb without checking. Actual point-to-rate trade varies by lender, market, and loan program. Always work from the actual quoted rate sheet.
Buying points to "lock in" rate certainty. Points reduce a fixed-rate loan's rate; they don't insure against rate volatility. If you want rate certainty, a fixed-rate loan already provides it. Points just lower the fixed rate further.

Frequently Asked Questions

Sources & further reading

What are (discount) points and lender credits? — U.S. Consumer Financial Protection Bureau
Publication 936 — Home Mortgage Interest Deduction — U.S. Internal Revenue Service
Loan Estimate explainer — understanding closing costs — U.S. Consumer Financial Protection Bureau

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