Are Mortgage Points Worth It? How to Find Your Break-Even
Learn how discount points lower your mortgage rate, how to find the break-even point and when buying points pays off, with a free calculator.
Published
Free tool: Mortgage Points CalculatorMortgage lenders often let you buy down your interest rate by paying discount points at closing. Whether that's a good deal comes down to one question: will you keep the loan long enough for the lower payment to repay the upfront cost? This guide explains how points work and how to find the break-even point, using the free Mortgage Points Calculator.
What mortgage points are
- One point costs 1% of the loan amount. On a $400,000 loan, one point is $4,000.
- Each point lowers the rate by an amount the lender sets, often around a quarter of a percentage point, though it varies by lender and market.
- You pay for points at closing, as part of your closing costs.
Lender credits work the other way: you accept a higher rate in exchange for the lender covering some closing costs.
Example: 2 points on a $400,000 loan
A $400,000, 30-year loan at 6.75%, or 6.25% if you buy 2 points:
- Cost of the points: $8,000
- Payment: $2,594.39 → $2,462.87, saving $131.52 a month
- Simple break-even: $8,000 ÷ $131.52 ≈ 61 months (5 years 1 month)
- Interest saved over the full 30 years: $47,348
The real break-even is sooner
The simple break-even counts only the lower payment. But a lower rate also pays the loan down faster, so if you sell or refinance, you owe less. Counting that, the calculator finds the points pay for themselves after 4 years in this example, not 5 years 1 month.
The net result depends on how long you keep the loan:
| Keep the loan | Net result of buying points |
|---|---|
| 3 years | lose $1,980 |
| 5 years | save $2,045 |
| 7 years | save $6,064 |
| 30 years | save $39,348 |
When points are worth it
- You'll keep the loan well past the break-even point, often 5 years or more.
- You have spare cash after the down payment, closing costs and an emergency fund.
- You don't expect to refinance soon. If rates fall and you refinance in a couple of years, most of the money spent on points is lost.
Points are usually a poor deal if you expect to move or refinance soon, or if the cash would do more as a larger down payment, for example to avoid PMI. In the US, points on a mortgage for your main home may be deductible as mortgage interest if you itemize; the calculator ignores taxes.
How to use the Mortgage Points Calculator
- Open the Mortgage Points Calculator.
- Enter the loan amount and term, and how many years you expect to keep the loan before selling or refinancing.
- Enter the rate without points, the number of points and the rate with points from your lender's quote.
- Read the results: whether points save or cost you money over the years you keep the loan, when you break even, the cost of the points, the monthly savings, the simple break-even and the interest saved over the full term, with a chart of net savings by year and a comparison of what you pay with and without points.
Frequently asked questions
How much does one mortgage point cost?
1% of the loan amount, so $4,000 on a $400,000 loan. How much it lowers the rate depends on the lender.
How do I calculate the break-even on mortgage points?
Divide the cost of the points by the monthly savings: $8,000 ÷ $131.52 is about 61 months. Counting the faster paydown of the lower-rate loan, the calculator finds 4 years in the example.
Should I buy points if I might refinance?
Usually not. If you refinance before the break-even point, the money spent on points is lost. In the example, keeping the loan only 3 years loses about $1,980.