Mortgage Points Calculator
Loans & MortgagesIs buying down the rate worth it?
Loan, rate & points
Enter a loan amount to price the points.
Advanced options
Enter a loan amount to price the points.
Formula reference
| Metric | Formula | Your value |
|---|---|---|
| Discount points cost | loan × discount points % | $0 |
| Rate after points | base rate − points × cut per point | 0.000% |
| Payment after points | L × r(1+r)ⁿ ÷ ((1+r)ⁿ − 1) | $0 |
| Monthly saving | payment before − payment after | $0 |
| Discount-points break-even | discount cost ÷ monthly saving | n/a |
| Net lifetime saving | monthly saving × term − discount cost | $0 |
Your inputs
| Input | What it means | Your value |
|---|---|---|
| Loan amount | The mortgage balance the points are priced against; one point costs 1% of it. | $0 |
| Interest rate before points | Your quoted rate before buying any discount points. | 0.000% |
| Loan term | The loan's length; a longer term spreads the saving over more payments. | 0 yr |
| Discount points | Discount points bought to lower the rate — each is 1% of the loan paid upfront. | 0 |
| Rate cut per point | How far each point lowers the rate. An estimate — confirm the actual buydown with your lender. | 0.000% |
| Origination points | Lender origination points: a fee charged as a % of the loan that does not lower the rate. | 0 |
| Years you'll keep the loan | How long you expect to keep this loan before selling or refinancing. | 0 yr |
Know what this estimate is based on
- Jurisdiction
- General model; U.S.-specific rules are identified on the relevant tool
- Scope and limitations
- Educational estimate only. A lender may use different compounding, day-count, eligibility, tax, insurance, escrow, fee, or rounding rules.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the loan amount, your quoted interest rate before points, the loan term, the discount points the lender is offering, and how long you expect to keep the loan.
- 02
Open Advanced to tune the rate cut each point buys — an estimate that varies by lender, defaulting to 0.25 percentage points — and to add any lender origination points.
- 03
Read the discount-points break-even and the worth-it verdict, then explore the payment before-vs-after comparison, the APR impact, the savings-over-time and net-benefit charts, and the loan-term and points scenario tables.
Formula
This calculator models a discount-point rate buydown from the ground up: you give it the loan, the rate before points, the term and the points bought, and it derives everything else. Each discount point costs one percent of the loan, so the discount cost = loan × points ÷ 100 — on the default 400,000 loan, 2 points cost 8,000. Each point also buys the rate down by an assumed amount, 0.25 percentage points by default (adjustable, because the real figure varies by lender), so the new rate = base rate − points × cut-per-point; 2 points at 0.25 take a 7% rate down to 6.5%. The monthly payment at each rate is the standard amortizing payment, M = L × r(1+r)ⁿ ÷ ((1+r)ⁿ − 1), where r is the monthly rate and n the number of months; at 7% the 30-year payment is about 2,661, and at 6.5% it falls to about 2,528 — a saving of 133 a month. The break-even is the discount cost divided by that saving: 8,000 ÷ 133 ≈ 60 months, about five years. Crucially the break-even uses the discount cost alone, not any origination points, because origination is a flat lender fee charged whether or not you buy the rate down, so it is irrelevant to the points decision (the tool still shows it, and the total cash to close, separately). Over the full term the lower payment saves the gap × the months — about 47,858 in interest — which after the 8,000 discount cost is a net lifetime saving of about 39,858. The APR estimate re-prices each payment stream against the net cash advanced (the loan minus the prepaid points), folding the upfront cost into a single annual figure: about 7.10% without the discount points and 6.80% with them on the defaults, both including the one origination point. Finally, if you keep paying the old, higher payment on the cheaper loan, the 133 difference goes straight to principal and clears the loan about four years early.
Example
Take the defaults: a 400,000 loan quoted at 7% over 30 years, with 2 discount points offered and 1 origination point, and you expect to keep the loan 7 years. The 2 discount points cost 8,000 (2% of 400,000) and the origination point adds 4,000, so you bring 12,000 to the closing table. At 0.25 points-per-point the 2 points cut the rate from 7% to 6.5%, dropping the monthly principal and interest from about 2,661 to about 2,528 — a saving of 133 a month. Divide the 8,000 discount cost by that 133 and you break even in about 60 months, almost exactly five years. Because you plan to stay seven years you clear break-even with room to spare, so the verdict is worth it: at the seven-year mark you are roughly 3,167 ahead, and held the full 30 years the points net about 39,858 after their cost. The net-benefit chart shows the turn plainly — at three years you are still about 3,214 in the red, at five years you are roughly even, and from seven years on you are firmly in profit; sell or refinance inside five years and the points lose money. Two extras sharpen the picture: buying the points lowers your APR from about 7.10% to 6.80%, and if you simply keep paying the old 2,661 payment on the cheaper loan, the 133 difference clears the mortgage about four years early and saves around 81,129 in interest.
Definitions
- Discount point
- One percent of the loan amount paid upfront to lower the interest rate for the life of the loan. Fractional points such as 0.5 or 1.5 are allowed, and on a 400,000 loan one point is 4,000.
- Origination point
- A lender fee, also charged as a percent of the loan, that pays to process the loan and does NOT lower the rate — so it sits outside the break-even, though it is part of your cash to close.
- Rate cut per point
- How far each discount point lowers the rate, defaulting to 0.25 percentage points here. It is an estimate; the true buydown varies by lender, loan type and the market, so confirm it on your quote.
- Break-even
- The number of months of lower payments needed to recover the discount cost, found by dividing that cost by the monthly saving. Keep the loan past it to come out ahead; on the defaults it is about 60 months.
- Monthly saving
- The drop in your principal-and-interest payment once the bought-down rate applies — the engine that slowly recovers the upfront cost. On the defaults it is about 133 a month.
- Net lifetime saving
- The interest saved over the full term minus the discount cost: what the points are worth if you keep the loan to the end. About 39,858 on the defaults.
- APR impact
- The annual percentage rate prices the upfront points as a prepaid finance charge, expressing the loan's true yearly cost. Buying points usually lowers it — here from about 7.10% to 6.80%.
- Holding period
- How long you expect to keep the loan before selling or refinancing. It is the single biggest factor in whether points pay off, because the saving only accrues while you hold the loan.
Good to know
What mortgage points are — and the two kinds
A mortgage "point" simply means one percent of the loan amount, paid in cash at closing, and lenders use the word for two very different charges that this calculator deliberately keeps apart. The first kind is the discount point, and it is the one that actually changes your loan. Each discount point you buy costs one percent of the balance — on a 400,000 loan that is 4,000 — and in exchange the lender lowers your interest rate for the entire life of the loan. The reduction is an estimate that varies by lender, loan and market, but a common rule of thumb is about a quarter of a percentage point per point; here two points take a 7.0 percent rate down to roughly 6.5 percent. Discount points are essentially prepaid interest: you hand over money today to buy a permanently cheaper monthly payment, so they only pay off if you keep the loan long enough to recover the upfront cost. You can usually buy fractional points too, so half a point or one-and-a-half points are normal, not all-or-nothing. The second kind is the origination point, and it does none of that. It is a lender fee, also quoted as a percentage of the loan, that pays for processing and underwriting your mortgage — one origination point on the same loan is another 4,000 — but it leaves your interest rate untouched. That distinction is the whole reason the two are separated here. Because origination is charged whether or not you buy down the rate, it is sunk relative to the points decision, so the break-even on discount points is figured from the discount cost alone, not the combined total. The origination fee still belongs in the cash you need to close — it simply does not belong in the question of whether buying the rate down was worth it. Keeping the lowering points and the non-lowering fee in separate buckets is what makes the rest of the analysis honest.
How a point buys down your rate
A discount point is the lever that does the actual work in this calculator: paying one upfront lowers the interest rate the lender charges, and a lower rate quietly trims every monthly payment for as long as the loan lives. Each point costs one percent of the loan amount, so on the default 400,000 mortgage a single point runs 4,000, and the two discount points modelled here cost 8,000 between them. In exchange the lender shaves a slice off the rate, and the convention this tool starts from is a cut of about a quarter of a percentage point per point. That is why two points carry the 7 percent base rate down to 6.5 percent: 2 points multiplied by 0.25 of a point is a half-point reduction, taken straight off the top. From that single move flows everything else the calculator shows, because the bought-down rate is what produces the cheaper payment, near 2,528 instead of about 2,661, and the roughly 133 of monthly saving the rest of the analysis rests on. The crucial caveat is that the quarter-point figure is an estimate, not a guarantee. The real reduction a point buys floats with the lender, the loan program, your credit, and the market on the day you lock, and it can land higher or lower than the rule of thumb. This calculator does not pretend to know your exact buydown; it exposes the cut-per-point as an input you can change, so the honest way to use the tool is to take the two rates a lender actually quotes you, with and without the points, and feed in the gap between them rather than trusting a textbook number. The model also floors the rate at zero, since no realistic stack of points drives a rate below nothing, but in practice you will run out of points worth buying long before that ever becomes a concern.
Break-even: the heart of the points decision
A discount point is priced as one percent of the loan, so on the canonical 400,000 mortgage two points cost 8,000, and that figure is the only number the break-even is built from. The arithmetic is deliberately plain: divide the discount cost by the monthly saving the lower rate buys you. Cutting the rate from about 7.0 percent to roughly 6.5 percent trims the payment from around 2,661 to about 2,528, a saving of about 133 a month, so 8,000 divided by 133 lands near 60 months, which is roughly five years. Until that month arrives you are merely clawing back your own outlay; every payment after it is money the rate cut puts back in your pocket. That is why the holding period decides everything. Keep the loan three years and you finish about 3,214 behind; reach five and you are roughly even; hold seven and you are around 3,167 ahead; carry it the full thirty and the net saving swells to about 39,858. The subtler point is why the break-even leans on the discount cost alone and leaves the origination point out, even though that fee is real money. An origination point is a charge for processing the loan, and you pay it whether or not you buy the rate down. Because it lands on the table either way, it is sunk relative to the points decision: it cancels out of the comparison between buying down and not buying down, so folding it into the break-even would only distort the one question that math is meant to answer. The rate-buydown break-even therefore uses the 8,000 discount cost by itself. None of this lets you forget the origination point, though. Your total cash to close still includes it, so on the defaults you bring 12,000 to closing, not 8,000. The break-even tells you when the rate buydown earns its keep; the closing statement tells you what the whole transaction costs on the day you sign.
A worked example, start to finish
Picture the default setup: a 400,000 loan you would otherwise carry at 7% for thirty years. You choose to buy two discount points and pay one origination point. Each point costs one percent of the loan, so the two discount points run 8,000, the origination point adds 4,000, and 12,000 leaves your account at closing. Only the discount points change your rate. At an estimated quarter-point of relief per discount point — a figure that genuinely varies by lender, so confirm it on your own quote — two points shave half a point off the rate, taking you from 7% down to 6.5%. That lower rate drops the amortizing payment from about 2,661 a month to roughly 2,528, freeing up around 133 every month for the life of the loan. Whether that trade pays off turns on a single comparison: the upfront cost against the monthly saving. Here the decision rests on the 8,000 in discount points, not the full 12,000, because the origination point is charged whether or not you buy down the rate — it is sunk relative to the points question. Dividing 8,000 by the 133 monthly saving gives a break-even of about sixty months, roughly five years. Past that point the savings are pure gain. Since you plan to keep this loan for seven years, you clear break-even with two years to spare and come out somewhere around 3,167 ahead by the time you sell or refinance. Hold the loan longer and the case only strengthens. Carried the full thirty years, the lower rate saves close to 47,858 in interest; subtract the 8,000 you paid for it and the net lifetime saving lands near 39,858. So at your seven-year horizon the points are modestly worth it, and over the full term they are decisively so — the verdict swings entirely on how long you actually stay.
Why your holding period decides everything
Buying discount points is, at its heart, a bet on time. The eight thousand you hand the lender for two points lowers the rate from about 7.0% to 6.5% and trims the payment by roughly 133 a month, but that 133 only repays the upfront cost slowly, one month at a time. Divide the cost by the saving and the break-even lands near sixty months — about five years. Everything in the decision pivots on that single date. Stay in the loan past it and the monthly savings keep accruing as pure benefit; leave before it and you never recover what you paid. This is why the net result swings so sharply with how long you actually keep the loan. At a three-year hold the points leave you behind by about 3,214, because thirty-six months of savings fall well short of the cost. At five years you are essentially even, the savings having just caught up with the eight thousand. At seven years you are ahead by about 3,167, and the longer you stay the wider that lead grows, reaching tens of thousands over a full thirty-year life. The verdict, then, depends entirely on your own horizon rather than on anything intrinsic to the points. For a borrower confident of holding the loan seven years or more, the buydown is worth it: the rate is genuinely lower for the whole stretch and the upfront cost is recovered with room to spare. For anyone likely to move, sell, or refinance within the first few years, it is not — they would pay the full cost upfront and walk away before the savings ever caught up. Because most people who relocate frequently, or who refinance whenever rates dip, rarely keep a loan long enough to clear the break-even, they are usually paying for a discount they will not own long enough to enjoy. Before buying points, the honest question is not whether the rate is lower but whether you will still hold this loan when the savings finally overtake the cost.
Lifetime savings versus the upfront cost
Buying down the rate trades cash today for a smaller payment every month, and the full-term math shows what that trade is ultimately worth. Over the life of a 30-year loan, the lower 6.5 percent rate shaves about 133 off each monthly payment, and that saving repeats across all 360 payments. Multiplying the monthly saving by the number of payments is the simplest way to see the total: roughly 133 a month over thirty years adds up to about 47,858 in interest you never pay. That figure is the gross prize — every dollar of interest the buydown keeps in your pocket, before accounting for what the points cost in the first place. The net lifetime saving subtracts the upfront price of the discount points from that gross total. The two points cost about 8,000, so the net comes to roughly 47,858 minus 8,000, or about 39,858. This is the number that actually answers the question the points decision poses: if you keep this loan all the way to the end, the points are worth about 39,858 to you, after you have already paid for them. It is a genuinely large return on an 8,000 outlay, but it is also the best case, because it assumes you hold the loan for the entire term and capture every month of the saving. That last condition is everything. The 39,858 only materializes if you stay in the loan to the finish line; sell, refinance, or pay off early and you collect only the portion of the saving you lived through. The total-interest and net-lifetime figures describe the ceiling of the benefit, not a guarantee. They tell you how much the buydown can save when carried to term, which is why they belong alongside the shorter holding-period view rather than replacing it — the longer you keep the cheaper rate, the closer your real result climbs toward this full-term number.
A hidden lever: keep paying your old payment
Buying points lowers the rate, which lowers the payment the lender requires of you — but it does not lower the payment you are allowed to make. That gap is where a quiet, optional strategy lives. After the buydown, the required monthly payment on this loan falls from about 2,661 to roughly 2,528, a difference of around 133. If you simply keep writing the old check of about 2,661 every month, the lender takes the 2,528 it now asks for and applies the leftover 133 straight to principal. Nothing about your budget changes, because you were comfortable paying 2,661 before the points existed; you are merely refusing to spend the savings the lower rate just handed you. What makes this powerful is that it stacks two effects that usually work alone. The rate cut shrinks the interest you owe on every remaining dollar of balance, and the steady extra 133 chips away at that balance faster than the schedule expects. Because principal and interest feed each other, paying down the balance early starves future interest, and a smaller balance then lets even more of the next fixed payment attack principal. Over the full term this compounding turns a modest monthly overpayment into a large result: the loan clears roughly four years early and you avoid about 81,129 in interest you would otherwise have paid. It is worth stressing that this is entirely optional and reversible. The lower payment is your true obligation, so in a tight month you can drop back to about 2,528 with no penalty and no missed payment, then resume overpaying when things ease. The points decision and the overpayment decision are separate; buying down the rate simply gives you a cheaper baseline, and choosing to keep paying the old amount is how you decide to press that advantage rather than pocket it.
Points and your APR
The annual percentage rate is the figure that lets you see what those upfront points really cost, because it treats them not as a separate fee but as part of the price of borrowing. Where the note rate simply names the interest charged on the balance, the APR asks a sharper question: once the cash you handed over at closing is counted as a prepaid finance charge, what single annual rate, applied to the money you actually netted, would reproduce this exact payment stream? Because that cash is now folded in, the APR always sits a little above the note rate. On the defaults the loan without the discount points carries a note rate of 7.0% but an APR of about 7.10%, the gap reflecting the origination point you pay either way; buying the two discount points drops the note rate to 6.5% and the APR to roughly 6.80%, with that same origination point still included in both figures. Notice that the APR improves by less than the note rate does — the headline half-point cut narrows to something nearer three-tenths once your upfront cash is priced in — and that smaller, honest gap is the real measure of what the buydown delivers. These APRs are estimates in the same way the rate cut is, so treat them as a guide and confirm the numbers on your own quote. The catch is that the lower 6.80% only describes the loan if you let it run the full thirty years, because the APR spreads that upfront cost evenly across every one of the 360 payments. Walk away early — sell or refinance after a few years — and you have paid the whole cost but captured only a sliver of the rate savings, so your true effective rate lands above 6.80%, not at it. That is the same kind of longevity the break-even rewards: both the APR and the recovery period only pay off if you keep this particular loan long enough to earn back what you spent.
Points, a bigger down payment, or lender credits
Discount points are only one way to spend the cash you bring to closing, and they are not always the best one. A point lowers your rate but builds no equity: the roughly 8,000 you would pay for two points on a 400,000 loan disappears into the cost of a cheaper rate, and you own no more of the home for having spent it. Its entire value arrives slowly, as a stream of smaller payments that only repays the outlay after the break-even of about five years and only profits you if you keep this exact loan well beyond that. A bigger down payment does something more tangible with the same money. It shrinks the balance itself, which lowers your loan-to-value ratio, can earn a better rate on its own, and in many cases is what lets you avoid or remove private mortgage insurance, a recurring cost points never touch. That cash becomes equity the day you close rather than a wager on how long you stay, so for a buyer near a loan-to-value threshold or carrying PMI, the down payment usually does more useful work than a rate buydown. Lender credits are the mirror image of points: instead of paying cash for a lower rate, you accept a higher rate and the lender hands you money toward closing. They suit the borrower points least suit, the one who is short on cash today or expects to sell or refinance within a few years, because a higher rate you will not carry for long costs little while the upfront help is real. The honest rule is to match the lever to the constraint. Spend on a down payment when equity, your rate, or escaping insurance is the prize; take a credit when cash at closing is tight or the hold is short; and reserve points for the case the rest of this calculator tests, a loan you are confident you will keep well past its break-even.
Using this calculator well — and what it leaves out
This calculator turns a discount-point buydown into the numbers that actually decide it: what the points cost, how much lower the monthly payment becomes, and how long it takes those savings to repay the upfront cash. The single most important assumption sits in the advanced settings — the rate cut per point. The default of 0.25 percentage points is a reasonable estimate, but the real buydown varies by lender, loan type, and the market on the day you lock. Two points might shave a clean 0.50 off your rate, as in the default scenario where 7.0% becomes 6.5%, or it might buy less. Always confirm the actual rate reduction against a written quote before trusting any break-even, because every figure here flows from that one input. The method itself is the standard one: it weighs the recurring payment savings against the money paid at closing. The break-even — about sixty months, or roughly five years, in the default case — uses only the discount cost of around 8,000, because the origination point is charged whether or not you buy down the rate, so it is sunk relative to the points decision. Your total cash to close still includes that origination fee; the tool simply keeps it out of the buydown math where it does not belong. What the model does not touch is just as worth knowing. It looks at the loan and nothing else — no property tax, homeowners insurance, PMI, or escrow, all of which are separate questions that this tool deliberately leaves alone. Whether the points are tax-deductible is another matter entirely, and one for a tax adviser rather than a calculator. Treat the result as the payment-versus-cost picture, not the whole cost of ownership. Lean on the point and term scenario grids, and on saved scenarios, to stress-test how the answer shifts when you keep the loan a shorter time or the lender offers a smaller cut — that is where a borderline decision usually reveals itself.
Frequently asked questions
What is a discount point and how much does it cost?
A discount point is an optional fee paid to the lender at closing, equal to one percent of the loan amount, in exchange for a lower interest rate for the life of the loan. On a 400,000 loan one point is 4,000 and two points are 8,000. Fractional points are common, which is why the calculator accepts values like 0.5 or 1.5 rather than only whole numbers.
How does buying points lower my rate?
Each discount point buys the rate down by a set amount — roughly 0.25 percentage points is a common rule of thumb, so two points take a 7% rate to about 6.5%. That figure is only an estimate, and the actual buydown varies by lender, loan type and market conditions, so the calculator lets you adjust the rate cut per point under Advanced and you should confirm the real number on your loan quote.
How is the break-even calculated, and why doesn't it include the origination fee?
Break-even is the discount cost divided by the monthly payment saving — on the defaults, 8,000 ÷ 133 ≈ 60 months. It deliberately excludes origination points: those are a flat lender fee charged whether or not you buy the rate down, so they are sunk relative to the 'should I buy points?' decision and cancel out. The tool still shows the origination cost and your total cash to close separately so you see the full upfront bill.
How long do I need to keep the loan for points to pay off?
Past the break-even point. On the defaults that is about five years, so a buyer who keeps the loan seven years comes out ahead and the verdict reads 'worth it', while someone who sells or refinances within five years loses money on the points. Because the answer hinges entirely on how long you hold the loan, the calculator asks for your expected holding period and judges the decision against it.
Do mortgage points lower my APR?
Usually, yes. APR folds the upfront cost of the points into the loan's annual rate, and because you are paying to secure a lower rate for the whole term, the APR with points is typically below the APR without them — about 6.80% versus 7.10% on the defaults. That improvement is only fully realised if you keep the loan long enough to benefit from the lower rate, which is the same condition the break-even measures.
Should I buy points or make a bigger down payment?
They do different jobs. Points lower your interest rate and monthly payment but build no equity, while a larger down payment shrinks the balance, lowers the loan-to-value ratio and can remove mortgage insurance. With limited cash, putting it toward the down payment is often the stronger move unless you are confident you will hold the loan well past its break-even.
What are negative points or lender credits?
They are the mirror image of buying points: instead of paying cash to lower your rate, you accept a higher rate and the lender gives you a credit toward closing costs. This calculator models the buy-down direction, but the same logic runs in reverse — lender credits suit borrowers short on cash upfront or planning to move or refinance soon, where a long break-even would never be reached.
Are mortgage points tax-deductible?
Sometimes, but this tool does not model tax. In some jurisdictions discount points are treated as prepaid mortgage interest and may be deductible — often all at once on a home purchase but spread over the loan's life on a refinance — while origination charges are generally not deductible unless they genuinely buy down the rate. The rules depend on your country, whether the loan is a purchase or a refinance, and how the property is used, so treat any deduction as a separate question for a qualified tax adviser.