How to use the mortgage points calculator
- Enter the loan amount and the term.
- Enter both lender quotes: the rate without points and the rate with points. The defaults are examples, so use the rates on your Loan Estimate.
- Enter the cost of the points, either as a number of points (one point is 1 percent of the loan) or as a dollar amount.
- Enter how many years you expect to keep the loan. Read the break-even point, the monthly savings and the table of what the points are worth after each period.
Formula
Cost of points = points x 1% x loan amount
Monthly payment = L x r / (1 - (1 + r)^-n) for each rate, rounded to the cent
Monthly savings = payment without points - payment with points
Break-even months = cost of points / monthly savings, rounded up
Interest saved after m months = interest paid without points - interest paid with points, from the month-by-month schedules
Net result = interest saved - cost of points
The simple break-even counts only the lower payment. The table uses interest saved, which also reflects that the lower rate pays down the balance a little faster. Both are shown so you can see the difference.
Worked examples
One point on $300,000: 1 point costs $3,000. At 7 percent for 30 years the payment is $1,995.91, and at 6.75 percent it is $1,945.79, a saving of $50.12 a month. The simple break-even is 3,000 / 50.12 = 59.85 months, which rounds up to 60 months (5 years).
What it is worth over time: after 3 years, interest saved is $2,259.97, so the net result is -$740.03. After 5 years it is $774.24 and after 7 years $2,289.05. Over the full 30 years total interest falls from $418,524.05 to $400,489.69.
A 15-year loan: $450,000 at 6.875 percent versus 6.25 percent with a $9,000 cost has payments of $4,013.34 and $3,858.40, a saving of $154.94 a month, and a break-even of 59 months, or 4 years 11 months. After 7 years the net result is $8,827.70.
Keeping the loan too briefly: for the first example, a plan to sell or refinance after 3 years costs more in points than it saves, and the tool warns you.
What discount points are
Discount points are fees paid at closing to a lender in exchange for a lower interest rate. One point usually costs 1 percent of the loan. The rate reduction a point buys varies by lender, loan and day, so this tool does not assume one. You enter the two quotes from your lender and it compares them.
The break-even idea
Points pay off only if you keep the loan long enough. The break-even is the number of months of lower payments needed to recover the upfront cost. If you expect to sell, refinance or pay off the loan before that point, the points lose money. If you plan to stay much longer, they win. The table makes the trade visible at 1, 2, 3, 5, 7 and 10 years and beyond, with your own expected time highlighted.
Keep in mind that the cash for points could also be used for a larger down payment, a reserve fund or other goals. Comparing those uses is outside this tool, but the cost of the points is shown in dollars so you can weigh it.
Where to confirm the numbers
Your Loan Estimate lists the rate, the points and other costs for each offer. Ask the lender for quotes with and without points on the same day so the comparison is fair. For the effect of the rate on your whole payment, use the mortgage calculator, and for the other costs due at closing the closing cost calculator. The mortgage affordability calculator shows how a lower payment changes the price you can reach.
Assumptions and limits
- Both loans are fixed-rate with the same amount and term, and the points are paid in cash at closing, not added to the loan.
- The rate with points is a quote you enter. The tool does not assume what a point buys.
- The break-even counts payments only. The table adds the lower balance through interest saved, taken from month-by-month schedules with interest rounded to the cent.
- There is no return on the cash spent on points. Tax treatment of points is not modeled.
- Lender credits, other fee differences and changes in rate if you refinance are not modeled. This is an estimate, not financial advice.
Frequently asked questions
Are mortgage points worth it?
They are worth it if you keep the loan beyond the break-even point. Enter your two rate quotes and the cost of the points to see the number of months, then compare it with how long you expect to stay.
How is the break-even for mortgage points calculated?
Divide the cost of the points by the amount your monthly payment falls, and round up to whole months. The tool also shows a table that counts interest saved over longer periods.
How much does one discount point cost?
A point is 1 percent of the loan amount, so one point on a $300,000 loan is $3,000. You can also enter the cost as a dollar amount if your quote lists it that way.
Why does the table differ slightly from the simple break-even?
The table counts interest saved, which includes the effect of a lower balance, while the simple break-even looks only at payment savings. The two agree closely but are not identical.
What if I refinance or sell early?
Then the points have fewer months to repay themselves. Set the years you expect to keep the loan to a shorter period and the tool shows a negative net result and a warning if you would lose money.