Mortgage Points Calculator
Mortgage Points Calculator
Calculate if buying discount points will save you money over your loan term
Each point typically costs 1% of loan amount and reduces rate by 0.25%
Mortgage Points Calculator: Complete Analysis Guide
Mortgage discount points are fees paid upfront to reduce your interest rate.Each point typically costs 1% of your loan amount and reduces your rate by 0.25%. This calculator helps you determine if buying points will save you money over your loan term through break-even analysis and financial projections.
Points can significantly reduce your monthly payments and total interest costs, but the upfront investment must be weighed against the time it takes to recoup those costs. Use our advanced calculator to analyze multiple scenarios and make an informed decision.
Quick Answer
Should you buy points? If you plan to keep your mortgage longer than the break-even period (typically 5-10 years) and have available cash, points usually save money. This calculator shows exact break-even times and total savings for your specific situation.
How Mortgage Points Work
Standard pricing: Each point costs 1% of loan amount and reduces rate by 0.25%
Point Mechanics:
Discount Points
Prepaid interest that permanently reduces your mortgage rate. Each point typically costs 1% of the loan amount. On a $400,000 loan, one point costs $4,000.
Rate Reduction
Each point usually reduces your rate by 0.25% (25 basis points). The exact reduction varies by lender and market conditions but 0.25% is the industry standard.
Break-Even Analysis
The time needed to recoup your points investment through monthly payment savings. Calculated as: Points Cost ÷ Monthly Savings = Break-Even Months.
When to Buy Mortgage Points
Good Candidates for Points
Points May Not Be Worth It
Real-World Examples
Example 1: $400,000 30-Year Mortgage
Base rate: 7.0%, buying 1 point for $4,000 reduces rate to 6.75%
Result: Net savings of $16,120 if you keep the loan for 30 years
Example 2: $800,000 Jumbo Loan
Base rate: 7.25%, buying 2 points for $16,000 reduces rate to 6.75%
Result: Net savings of $65,920 for high-value properties
Example 3: 15-Year Mortgage Points
$350,000 loan at 6.5%, buying 1.5 points for $5,250 reduces rate to 6.125%
Result: Break-even time exceeds halfway point - consider carefully
Tax Benefits and Considerations
Tax Advantages
Immediate Deduction
Points are generally tax-deductible in the year you pay them for home purchases
Refinance Points
Points paid for refinancing must be deducted over the life of the loan
Higher Tax Brackets
More valuable deduction for those in higher marginal tax rates
Important Limitations
SALT Cap Impact
State and local tax deduction limits may affect overall tax benefit
Standard Deduction
Must itemize to claim mortgage interest and points deductions
Expert Advice
Consult tax expert for your specific situation and current tax law
Alternatives to Buying Points
Investment Alternatives
Market Investments
Invest points cost in index funds or other securities that may provide higher returns
Home Improvements
Use funds for renovations that increase home value and personal enjoyment
Emergency Fund
Maintain higher cash reserves for financial security and flexibility
Extra Principal
Make additional monthly principal payments for flexible prepayment benefits
Rate Shopping Strategy
Compare multiple lenders: Different lenders may offer better base rates that eliminate the need for points entirely.
Negotiate closing costs: Use points savings to negotiate lower lender fees or request lender credits.
Consider ARM products: Adjustable-rate mortgages may offer lower initial rates if you plan shorter ownership periods.
Using This Calculator Effectively
Input Tips
Analysis Features
Important Reminders
• Points analysis assumes you keep the loan for the full term
• Consider refinancing likelihood and timeline changes
• Factor in opportunity cost of alternative investments
• Verify all rates and costs with your actual lender
• Tax benefits depend on your specific tax situation
Related Mortgage Tools
Mortgage Points Calculator
Calculate if buying discount points will save you money over your loan term
Each point typically costs 1% of loan amount and reduces rate by 0.25%