Mortgage Points Break-Even Calculator

How it works

Discount points are prepaid interest: you pay a lump sum up front to lower your rate, which lowers your monthly payment. Whether that is worth it comes down to how long it takes the monthly savings to add back up to what you paid. The break-even is a simple division:

With the defaults above, 1 point on a $320,000 loan costs $3,200 (points are priced at 1% of the loan each). If that point cuts the payment by $60 a month, it takes about 53.3 months, roughly 4.4 years, to break even. Stay in the home and loan past that point and the reduced payment is pure savings, so points favor people who keep the loan a long time.

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A worked example: one point on a $320,000 loan

Your lender offers to shave your rate if you buy one point on a $320,000 loan. That point costs $3,200 up front, one percent of the balance, and in return your monthly payment drops by $60.00.

To find out whether that trade pays off, divide the cost by the monthly saving: $3,200 divided by $60 lands at about 53.3 months to break even, or roughly 4.4 years. Until then you are simply earning back the check you already wrote.

So the whole decision hinges on how long you keep this mortgage. Stay past 4.4 years and every month after is pure savings, but sell or refinance before then and the points never fully pay for themselves. Enter your loan amount, point cost, and expected monthly saving to find your own break-even.

When points make sense

• Long horizon. Points reward staying put. If you will keep the loan well beyond the break-even, the lifetime savings can be substantial.
• Short horizon or likely refinance. If you may sell or refinance before break-even, you lose money on points, so skip them and keep the cash.
• Compare the alternative. The same cash as a larger down payment or in savings might serve you better. Points are just one way to spend money at closing.

How points actually change your rate

A discount point costs 1% of the loan and buys down your interest rate, but the exact rate drop is set by the lender and market conditions, not a fixed rule. A common rough figure is around a quarter of a percent per point, though it varies and often shrinks as you buy more. That is why the calculator asks for the monthly payment reduction directly: it is the honest measure of what a point is worth to you.

• Ask for a rate sheet. Have the lender quote the payment at zero, one, and two points on the same loan so you can see the real drop.
• Diminishing returns. The first point often moves the rate more than the second, so buying many points is not always proportionally better.
• It is prepaid interest. Points are money spent now to lower interest later, which only pays off if you keep the loan long enough to collect that saving.
• Same cash, other uses. The money spent on points could instead grow your down payment or stay in savings, so weigh points against those alternatives too.

Break-even is only the starting line

The break-even month is when your accumulated payment savings finally match what you paid for the points, but it is not where the benefit stops. Every month you keep the loan past that point, the lower payment is pure gain, and over a long tenure those gains can far exceed the upfront cost. The break-even tells you the risk; the years beyond it tell you the reward.

• Before break-even. If you sell or refinance here, you lose money on the points, having paid more up front than you got back.
• At break-even. You are square: the savings have exactly repaid the cost, and from here everything is upside.
• Well past break-even. On a loan you hold for its full term, the total saved from a lower rate can outweigh the price of the points several times over.
• Match it to your plans. Compare the break-even month honestly against how long you realistically expect to keep this exact loan.

Points on a purchase versus a refinance

Points behave the same mathematically whether you are buying or refinancing, but the tax treatment and the surrounding decision differ enough to matter. The break-even math in this tool applies to both; the fine print around it does not, so it is worth separating the two before you decide.

• On a purchase. Points paid to buy your main home are often deductible in the year you pay them, which can soften the upfront cost if you itemize.
• On a refinance. Points usually have to be deducted gradually over the life of the new loan rather than all at once, changing the after-tax picture.
• Refinance risk. Because refinancing already resets your loan, buying points on top only pays off if you are confident you will not refinance again soon.
• Confirm with a pro. Tax rules shift and depend on your situation, so check the current treatment with a tax professional before counting on a deduction.