How the calculation works
Cost of points = Loan amount × Points ÷ 100
Break-even (months) = Cost of points ÷ Monthly payment savings
Break-even (months) = Cost of points ÷ Monthly payment savings
Monthly payments use the standard amortization formula for principal and interest. The net gain compares the savings over the years you keep the loan with the upfront cost (it ignores the investment return you could earn on that cash).
Example: A $300,000, 30-year loan at 7% costs $1,995.91 a month. Buying 2 points ($6,000) at 0.25% each lowers the rate to 6.5% and the payment to $1,896.20 — a saving of $99.71 a month. Break-even is 60 months. Keep the loan 10 years and you come out about $5,965 ahead.
Before you buy points
- Ask the lender for quotes with 0, 1 and 2 points so you compare real offers.
- Points are more attractive when you are confident you will not refinance soon — for example if rates are already low.
- Some sellers or builders pay points as a concession; that is almost always worth taking.
See the full monthly payment with taxes and insurance in the mortgage calculator.
Frequently asked questions
What is a mortgage point?
One discount point costs 1% of the loan amount, paid at closing, and typically lowers the interest rate by about 0.25 percentage points. The exact reduction varies by lender and market, so use the figure on your Loan Estimate.
How do I calculate the break-even point?
Divide the cost of the points by the monthly payment savings. On a $300,000 loan, 2 points cost $6,000; cutting the rate from 7% to 6.5% saves about $99.71 a month, so break-even is roughly 60 months (5 years).
When are points not worth it?
If you expect to sell, refinance or pay off the loan before the break-even date, you lose money on points. They also compete with using the cash for a bigger down payment, which can avoid PMI.
Are mortgage points tax-deductible?
Points paid on a loan to buy your main home are often deductible as mortgage interest in the year paid if you itemize and meet IRS conditions. Points on a refinance are usually deducted over the life of the loan.