Mortgage Points Calculator - Calculate Points Savings
Free mortgage points calculator to determine if buying discount points is worth it and calculate your break-even time
Mortgage Points Calculator
Points Analysis
What is a Mortgage Points Calculator?
A mortgage points calculator is a free financial tool that helps you determine whether buying discount points at closing is a smart financial decision. It calculates the upfront cost of points, monthly payment savings, break-even timeline, and total interest savings over the loan term.
This calculator helps with:
- Break-even analysis - Determine how long until points pay for themselves
- Cost comparison - Calculate upfront cost versus long-term savings
- Rate reduction planning - See how points lower your monthly payment
- Closing cost optimization - Decide if points fit your budget and timeline
- Long-term savings projection - Calculate total interest saved over loan life
Understanding your baseline costs is essential before buying points. Use our mortgage calculator to see your standard monthly payment without points and evaluate if rate reduction makes sense.
If you're comparing buying points versus refinancing later, our refinance calculator helps you analyze both strategies to determine which provides better long-term savings.
For a complete picture of your mortgage costs including points, use our APR calculator to see the true annual cost of your loan with all fees and points factored in.
How Mortgage Points Calculation Works
The calculator uses these formulas to analyze mortgage points:
Points Cost Formula:
Cost = Loan Amount × Number of Points × 1%
Example: $300,000 × 1 point = $3,000
Monthly Payment Formula:
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Where:
M = Monthly payment
P = Principal amount
r = Monthly interest rate
n = Number of payments
Break-Even Formula:
Break-Even = Points Cost ÷ Monthly Savings
Example: $3,000 ÷ $50/month = 60 months (5 years)
Key Points Concepts Explained
Discount Points
Prepaid interest paid at closing to reduce your mortgage rate. Each point typically costs 1% of loan amount and lowers rate by 0.25%.
Break-Even Period
Number of months until monthly savings equal the upfront cost of points. Stay beyond this point to profit from buying points.
Rate Reduction
Amount your interest rate decreases per point purchased, typically 0.25% but varies by lender and market conditions.
Origination Points
Lender fees separate from discount points. These don't reduce your rate and shouldn't be confused with discount points.
How to Use This Mortgage Points Calculator
Enter Loan Amount
Input your mortgage principal amount (e.g., $300,000)
Enter Base Rate
Input the interest rate without points (e.g., 6.5%)
Enter Loan Term
Specify your mortgage term in years (e.g., 30 years)
Enter Points Number
Input how many points you're considering (e.g., 1 or 2)
Enter Rate Reduction
Input rate reduction per point (typically 0.25%)
Analyze Results
Review break-even time and total savings to decide
Benefits of Using Mortgage Points Calculator
- • Informed Decision Making: Know exactly whether buying points makes financial sense for your situation.
- • Break-Even Clarity: See precisely how long you need to stay in the home for points to pay off.
- • Budget Planning: Calculate upfront costs and ensure points fit within your closing budget.
- • Long-Term Savings: Visualize total interest saved over entire loan term with reduced rate.
- • Lender Comparison: Compare point offerings from different lenders to get the best deal.
- • Tax Planning: Understand deductible costs and incorporate into overall tax strategy.
Factors That Affect Points Value
1. How Long You Stay
Points only benefit if you stay past break-even. Selling or refinancing early means losing money on points purchased.
2. Loan Amount
Larger loans = higher point costs but also larger monthly savings. Points work best for jumbo mortgages.
3. Interest Rate Environment
When rates are high, buying points provides more significant monthly savings and faster break-even.
4. Tax Deductibility
Points on primary residence purchases may be fully deductible in year paid, increasing effective value.
5. Alternative Uses for Cash
Consider opportunity cost. If cash invested elsewhere earns more than point savings, skip the points.
Frequently Asked Questions
Are mortgage points worth it?
Mortgage points are worth it if you plan to stay in the home long enough to reach the break-even point where monthly savings exceed the upfront cost. Typically, this requires staying at least 5-7 years. Calculate your specific break-even period to make an informed decision.
How much does one mortgage point cost?
One mortgage point costs 1% of your total loan amount. For example, on a $300,000 mortgage, one point would cost $3,000. Points are paid at closing and immediately reduce your interest rate, typically by 0.25% per point.
Can I deduct mortgage points on my taxes?
Mortgage points paid on your primary residence purchase may be tax deductible in the year paid if certain conditions are met. Points paid for refinancing must be deducted over the loan term. Consult a tax professional for specific guidance on your situation.
What is the difference between discount points and origination points?
Discount points are optional fees you pay to reduce your interest rate, providing long-term savings. Origination points are lender fees for processing the loan and don't reduce your rate. Only discount points should be evaluated using this calculator.
How much do mortgage points reduce your interest rate?
Generally, each point reduces your interest rate by approximately 0.25% (25 basis points), though this can vary by lender and market conditions. Some lenders offer 0.125% or 0.375% reductions per point depending on loan type and current rates.