The only question that matters: how long will you keep the loan?
Points are a bet on your own stability. Before break-even, the lender is ahead; after it, you are — every single month, for as long as the loan lives. The average American mortgage lasts well under its full term because people move and refinance, which is exactly why lenders sell points happily. Be honest about your horizon: a starter home you expect to outgrow in four years rarely justifies points with a five-year break-even.
This calculator compares the exact principal-and-interest payment at both rates, divides the cost of the points by the monthly difference to find break-even, and shows the net gain if you hold the loan to maturity.
Reading a lender’s rate sheet
Lenders quote several rate/point combinations for the same loan. Two things to check with this tool:
- Compare like with like. Always compare the total cost of points (from the Loan Estimate, section A) against the payment difference — not the advertised “point” count, which sometimes hides origination fees.
- Diminishing returns. The first point usually buys the biggest rate cut; the second and third often buy less. Run each tier separately — it’s common for one point to make sense and two not to.
Points vs. the alternatives
The same cash could instead raise your down payment (which can remove PMI — often a better deal), sit in your emergency fund, or pay down higher-rate debt. And if you already have the mortgage, the equivalent move is prepaying principal: see the biweekly payment calculator for what that path saves.
Frequently asked questions
What are mortgage discount points?
A discount point is prepaid interest: you pay 1% of the loan amount at closing in exchange for a lower interest rate — typically 0.125% to 0.25% off per point. Points are a trade: cash today for a smaller payment every month for the life of the loan.
How is the break-even point calculated?
Divide the cost of the points by the monthly payment savings. If one point costs $4,000 and lowers your payment by $66, you break even in about 61 months — roughly five years. Keep the loan longer than that and the points were a good buy; sell or refinance sooner and they were a loss.
When are points a bad idea?
When you are likely to move or refinance before break-even, when the cash would deplete your emergency fund, or when the same money used as a bigger down payment would eliminate mortgage insurance. If rates are likely to fall and you expect to refinance, points bought today are usually wasted.
Are mortgage points tax-deductible?
Points on a purchase mortgage for your primary residence are generally deductible — sometimes fully in the purchase year, otherwise spread over the loan term — but only if you itemize deductions. Points on a refinance are typically amortized over the loan term. Confirm with a tax professional.
Should I pay points or make a bigger down payment?
Run both numbers. A bigger down payment reduces the balance (and can remove PMI below 80% loan-to-value), while points reduce the rate. When PMI is in play, the down payment usually wins. Without PMI, compare the payment reduction per dollar spent — this calculator gives you the points side of that comparison.