1 point = 1% of loan amount paid upfront
Typically 0.25% per point in 2026
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Introduction
Buying mortgage discount points is a bet on how long you will keep the loan. Pay more upfront, pay less each month — but only come out ahead if you hold long enough to recoup the cost. The math is unforgiving: a 5-year break-even on a loan you refinance in year 3 is a guaranteed loss. According to Freddie Mac's mortgage market data, the average mortgage is refinanced or paid off within 7 to 8 years — meaning the typical borrower barely clears break-even on a single point purchase. Yet lenders routinely present points as unambiguous savings without showing the holding period math. In 2026, with 30-year rates averaging 6.5% to 7.0%, each discount point typically reduces the rate by 0.20% to 0.25% and costs 1% of the loan amount. This calculator shows the exact break-even month, total interest saved over the loan term, and net benefit after the point cost — so you can decide with full information.
What This Calculator Does
This mortgage points calculator evaluates whether buying discount points makes financial sense for your specific loan and expected hold period. Enter the loan amount, interest rate without points, rate reduction per point, number of points, and expected months you will hold the loan. The calculator returns the upfront cost of points, monthly payment with and without points, monthly savings, break-even period in months, and total net savings or loss over your expected hold period and the full loan term.
The Formula
Each discount point equals 1% of the loan amount paid as a lump sum at closing. The rate reduction per point (typically 0.20% to 0.25%) reduces your monthly payment by the difference in amortized payments between the original rate and the reduced rate. Break-even is how many months of accumulated monthly savings equal the upfront point cost. If you hold the loan past break-even, you save money. Total net savings over the full loan term is the difference in total interest paid across both scenarios minus the upfront point cost.
Step-by-Step Example
Calculate the cost of points
Loan amount $380,000. Buying 1.5 discount points: $380,000 x 1.5% = $5,700 upfront cost paid at closing.
Determine rate reduction and new payment
Original rate 7.0%, 1.5 points reduces rate to 6.625% (0.25% per point). Payment at 7.0%: $2,529/month. Payment at 6.625%: $2,433/month. Monthly savings: $96.
Calculate break-even period
$5,700 upfront cost / $96 monthly savings = 59 months (4 years, 11 months) to break even.
Evaluate against expected hold period
If you plan to hold 7 years: 84 months - 59 break-even = 25 months in the money. Net savings: 25 x $96 - $0 (break-even already covered) = $2,400. Full 30-year net savings: ($96 x 360) - $5,700 = $28,860.
Real-World Use Cases
Long-Term Primary Residence Purchase
A buyer purchasing their forever home with no plans to move models a 10-year hold period. At a 59-month break-even, they are in the money for 61 months of their 10-year scenario, netting $5,856 in savings — making 1.5 points clearly worthwhile.
Investment Property Cash Flow Improvement
An investor buying a rental property at $420,000 tests whether 1 point ($4,200) at a 0.25% rate reduction saves enough on monthly cash flow to justify the upfront cost. With a 56-month break-even and planned indefinite hold, the $120/month monthly savings compound to $43,200 over 30 years net of the point cost.
Refinance Decision with Points
A borrower refinancing from 7.5% to 7.0% considers paying 1 point ($3,200) to get to 6.75%. The additional $68/month savings extends break-even by 47 months on top of the no-points refi break-even. If they plan to hold the refi for 10+ years, the incremental point makes sense.
Comparison
| Loan Amount | Points | Rate Reduction | Upfront Cost | Monthly Savings | Break-Even |
|---|---|---|---|---|---|
| $350,000 | 1 | 0.25% | $3,500 | $57 | 61 months |
| $350,000 | 2 | 0.50% | $7,000 | $114 | 61 months |
| $450,000 | 1 | 0.25% | $4,500 | $73 | 62 months |
| $450,000 | 1.5 | 0.375% | $6,750 | $109 | 62 months |
| $600,000 | 1 | 0.25% | $6,000 | $97 | 62 months |
Common Mistakes to Avoid
Buying points when your actual loan hold period is shorter than break-even. The most common scenario: buying 2 points on a 30-year loan with a 5-year break-even, then refinancing in year 4 when rates drop. The $7,000 spent on points generates zero net savings.
Confusing discount points with origination points. Discount points reduce your interest rate and have a direct monthly payment impact. Origination points are lender fees that compensate the lender for processing the loan without reducing your rate. Confirm which type you are being quoted.
Ignoring the opportunity cost of the point payment. The $5,000 spent on points could alternatively reduce the principal (saving interest over time), increase your down payment, or be invested. Compare the guaranteed return of points against these alternatives.
Assuming the rate reduction is always 0.25% per point. The rate buydown per point varies by lender, market conditions, and loan program. In some environments, 1 point buys only 0.125% of rate reduction; in others, 0.375%. Always ask the lender for the specific rate sheet before calculating.
Frequently Asked Questions
Accuracy and Disclaimer
This calculator provides estimates based on standard fixed-rate amortization. The rate reduction per point varies by lender and market conditions. Tax deductibility of points depends on your specific tax situation and whether IRS requirements are met. Future plans (refinancing, selling) are uncertain and directly affect whether buying points is beneficial. Consult your lender and a tax advisor before making a points decision.
Conclusion
If your expected hold period is at least 2 years beyond the break-even month, buying points often makes economic sense. If you plan to sell or refinance before break-even, do not buy points. Combine this analysis with a complete view of upfront costs using the Closing Cost Calculator. For investment properties, pair the lower monthly payment from points against the return you could earn by investing those same funds using the Cap Rate Calculator as a benchmark.
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