Mortgage Points Calculator: Break-Even and Savings
Should you pay points to get a lower rate on a new loan? Enter the loan, the points and the rate cut they buy to see the break-even month and your net savings. For refinancing an existing loan use the refinance break-even calculator.
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Formula
- Cost of points =
loan x points / 100(one point = 1% of the loan). - New rate = base rate - points x rate cut per point.
- Monthly saving = payment at base rate - payment at new rate, using
P x r / (1 - (1 + r)^-n). - Break-even months =
ceil(cost / monthly saving). Net savings = monthly saving x months kept - cost.
Worked example
300,000 over 30 years at 7%: payment 1,995.91. One point costs 3,000 and lowers the rate to 6.75%: payment 1,945.79, a saving of 50.12 a month. Break-even is 3,000 / 50.12 = 59.9, so 60 months. Kept for 10 years the net saving is 50.12 x 120 - 3,000 = 3,014.40.
When to use it
Use this page when a lender offers a lower rate on a new loan in exchange for upfront points. It compares points with a lower payment on the same loan. If you are replacing a loan you already have, use the refinance break-even calculator, and for the full cost of borrowing including fees, the APR calculator.
Second example
400,000 over 30 years at 6.5% has a payment of 2,528.27. Two points cost 8,000 and cut the rate to 6.0%, giving a payment of 2,398.20, a saving of 130.07 a month. Break-even is 62 months, and keeping the loan 8 years leaves 4,486.72 ahead.
Common mistakes
- Assuming each point cuts the rate by the same amount everywhere; use your quote.
- Ignoring how long you will really keep the loan.
- Not comparing with putting the same money toward a larger down payment.
Assumptions
- The rate cut per point is whatever your lender quotes; it is not a rule.
- Savings are not discounted and tax effects are not included.
Frequently asked questions
What is a mortgage discount point?
One point costs 1% of the loan amount and usually lowers the interest rate by a set amount, often around 0.25 percentage points. Your lender decides the real figure, so enter the cut from your quote.
How is the break-even calculated?
Divide the cost of the points by the monthly payment saving and round up. For 300,000 at 7%, one point costs 3,000 and cuts the rate to 6.75%, saving 50.12 a month: 3,000 / 50.12 = 59.9, so 60 months.
When are points worth buying?
When you keep the loan longer than the break-even months. Keeping the example loan 10 years gives 50.12 x 120 - 3,000 = 3,014.40 ahead. Selling or refinancing after 2 years leaves you 1,797.12 behind.
Does this include the time value of money?
No. It compares payments and cost in plain amounts and does not discount future savings or include what the cash could earn elsewhere, so treat close results as a toss-up.
How long does it take to break even on mortgage points?
Divide the cost of the points by the monthly saving. On 400,000 at 6.5%, two points cost 8,000 and cut the rate to 6.0%, saving 130.07 a month, so break-even is 62 months, a little over 5 years.
Are mortgage points worth it if I move in 5 years?
With one point on 300,000 at 7%, the saving is 50.12 a month, so after 60 months you are only 7.20 ahead. Selling or refinancing before then loses money. At 7 years the net saving is 1,210.08.
Is it better to buy one point or two?
Compare the break-even months and net savings of each. Two points on the 300,000 loan cost 6,000, save 99.71 a month, and break even in 61 months; over 10 years the net saving is 5,965.20 against 3,014.40 for one point.