Mortgage Points Calculator

This mortgage points calculator tells you whether paying discount points up front for a lower interest rate is likely to pay off. It compares two quotes from the same lender, one with points and one without, and shows the cost, the monthly savings, the break-even month and your net result over the years you expect to keep the loan.

How do you use this calculator?

Enter your loan amount, the rate with no points and the lower rate with points, plus how many points that rate costs. Then choose your term and how long you expect to keep the loan. The most important input is the last one, because points only pay off if you stay long enough.

Tips on each input:

• Rates. Use two quotes from the same lender on the same day, so the only difference is the points.
• Points. One point is 1% of the loan. Lenders may quote fractions, such as 0.5 or 0.875 point.
• Years. Think about job moves, family plans and the chance you refinance if rates drop.

How are points calculated?

The calculator finds the cost of the points, compares the two monthly payments, and divides the cost by the monthly savings to get the break-even month. It then adds up the savings over your time frame, plus the lower balance you would owe, and subtracts the cost.

The formulas:

• Cost = loan amount × points ÷ 100
• Payment = P × r(1 + r)^n / ((1 + r)^n − 1) for each rate
• Monthly savings = payment without points − payment with points
• Break-even months = cost ÷ monthly savings, rounded up
• Net savings = monthly savings × months kept + (balance without points − balance with points at that time) − cost

The calculator covers principal and interest only. It assumes the rest of your closing costs are the same with or without points, and it does not include taxes, insurance, tax effects or what you could earn by investing the cash instead.

Worked example

Here is how the same loan plays out with different choices.

The example rates are for illustration only. For current national averages, see Freddie Mac’s weekly Primary Mortgage Market Survey; your quotes depend on your credit, down payment and loan type (CFPB Explore interest rates).

What does your result mean?

If the verdict says the points pay off, you are likely to keep the loan past the break-even month. If not, you would probably sell or refinance first and lose part of what you paid. A break-even within your time frame with a cushion of a few years is the safest case.

What can change the answer:

• Refinancing. If rates fall and you refinance, the points on your old loan stop paying you back.
• Lender pricing. Each lender sets its own price per point. The CFPB suggests asking a loan officer to compare total costs over the shortest, longest and most likely time you will keep the loan.
• Cash needs. Money spent on points is not available for the down payment, reserves or repairs.
• Rate locks. Points are tied to a locked rate. The CFPB notes locks are typically available for 30, 45 or 60 days (CFPB).

For a deeper look at when points make sense, read should you buy mortgage points. If you are also weighing closing costs, see how much closing costs are.

Common mistakes

Most bad decisions on points come from overestimating how long you will keep the loan. Others:

• Comparing quotes from different lenders or different days.
• Calculating points on the home price instead of the loan amount.
• Ignoring the chance of refinancing if rates fall.
• Draining reserves to buy points.
• Counting on a tax deduction without checking current IRS rules.

Related tools: compare refinance timing with the refinance break-even calculator, see the trade-offs of an adjustable rate with the ARM vs fixed calculator, and estimate total cash due with the closing cost calculator.