Mortgage Points Calculator

Mortgage points—often called discount points—are fees paid directly to the lender at closing in exchange for a reduced interest rate. Typically, one point equals 1% of the total loan amount and generally reduces your interest rate by a set fraction, such as 0.25%. The math relies on computing your upfront point cost using the formula: Point Cost = Loan Amount × Number of Points × 0.01. Your adjusted interest rate is then determined by subtracting the rate reduction from the baseline rate. By comparing the new lower monthly payment against the baseline payment, the calculator identifies your monthly savings and calculates your break-even month by dividing the total upfront point cost by the monthly savings amount.

Imagine you are securing a $300,000 baseline mortgage with a 30-year term at an initial interest rate of 6.5%. You are evaluating Option 1: purchasing 1 mortgage point (1% of the loan amount, or $3,000) to lower your interest rate by 0.25% down to 6.25%. First, calculate your point cost: $300,000 × 0.01 = $3,000. Next, determine your new monthly principal and interest payment at 6.25%, which drops from roughly $1,896 down to $1,848, creating a monthly savings of $48. To find your break-even point, divide your upfront cost by your monthly savings: $3,000 ÷ $48 = 62.5 months (or about 5 years and 3 months). If you plan to stay in the home longer than 63 months, purchasing the point yields net financial savings.

Before committing to buying discount points, consider your timeline and cash flow. Ensure you have sufficient cash reserves to cover the upfront points without depleting your emergency fund or compromising your down payment. Additionally, evaluate your expected duration of stay in the property; if you plan to move or refinance within a few years, you may sell or switch loans before reaching your break-even threshold, rendering the upfront purchase unprofitable. Finally, weigh the opportunity cost of spending that cash upfront versus investing it elsewhere.