Mortgage Points Calculator (Discount Point Breakeven)

A discount point is 1% of the loan amount paid at closing to buy a lower interest rate. Whether that is worthwhile is a single question: how long will you keep this loan?

The breakeven is the point cost divided by the monthly saving. Before it, you are behind. After it, you are ahead. The arithmetic is simple; the judgement is not, because most borrowers substantially overestimate how long they will hold a mortgage. Median tenure is well under the breakeven periods that points commonly imply.

One useful property: buying more points does not usually change the breakeven. Two points for twice the rate reduction gives the same 5.1 years here, because both cost and saving double. What changes the breakeven is the rate reduction per point, which is what you should actually shop between lenders.

Cost of points:

Monthly payments at each rate come from the standard annuity formula:

Breakeven is then simply:

The page also shows the net saving over the full term: total interest avoided, less the cost of the points.

$400,000 loan, 6.5% without points, 6.25% with one point, 30 years:

• Cost of the point: $4,000
• Payment without: $2,528.27. With: $2,462.87
• Monthly saving: $65.40
• Breakeven: $4,000 ÷ $65.40 = 61 months, or 5.1 years
• Held the full 30 years: net saving of $19,544

Two points buying a half-point rate cut (6.5% to 6.00%): cost $8,000, and the breakeven is still 5.1 years. Doubling both sides changes nothing. This is why comparing lenders on rate reduction per point matters more than on the number of points.

One point for only 0.125% (6.5% to 6.375%): the breakeven doubles to 10.2 years. Same cost, half the benefit. This is a bad deal, and it is common.

A 15-year term instead: breakeven stretches to 6.1 years, because there is less total interest for the lower rate to save.

• The opportunity cost of the cash. $4,000 at closing could have been invested, or used to reduce the loan balance directly. The simple breakeven ignores this, which flatters points.
• Tax deductibility. Points on a primary residence purchase may be deductible in the year paid in the US, and on a refinance are usually amortised over the loan term. That materially changes the after-tax breakeven.
• The refinance you have not planned yet. Rates fall, people refinance, and the points paid on the old loan are gone. This is the single largest risk to the calculation.
• Selling the home, which ends the benefit at the same moment.
• Lender credits, the reverse trade: taking a higher rate for cash at closing.
• Whether the quoted reduction is real. Some lenders quote points against an inflated base rate, so the reduction is less than it appears.
• Loan level price adjustments, which vary the rate by credit score and LTV independently of points.
• Making extra principal payments, which shortens the effective loan life and therefore the window in which points pay off.

• Overestimating how long you will keep the loan. This is the central error. A 5.1-year breakeven sounds comfortable against a 30-year term, but median mortgage tenure is far shorter than borrowers expect, because both moving and refinancing end it.
• Comparing points instead of rate reduction per point. Two points at 0.25% each is the same trade as one point at 0.25%, just larger. One point for 0.125% is a different and worse trade.
• Ignoring the opportunity cost. The breakeven here is nominal. Discounting the monthly savings at any positive rate pushes it further out.
• Forgetting the tax treatment. In the US, points on a purchase may be deductible immediately while points on a refinance are amortised, which can change the answer entirely.
• Buying points when planning extra payments. Paying down principal faster shortens the loan and can leave you short of the breakeven.
• Treating a long breakeven as merely suboptimal. If it exceeds your realistic holding period, buying points is not a marginal call. It is a straight loss.

• Standard loan amortisation mathematics. The payment formula and the breakeven calculation carry no jurisdictional content.
• US tax treatment of points, deductible in the year paid on a purchase and amortised on a refinance, is noted as a factor the calculation excludes rather than applied.