Discount points let you prepay interest to lock in a lower mortgage rate, but the trade only pays if you keep the loan longer than the break-even point. This calculator prices your points against the monthly savings they create, shows the exact break-even month, and compares the same cash spent as a bigger down payment, which turns out to be the comparison most borrowers never run.
A mortgage point is prepaid interest. You pay 1 percent of your loan amount at closing, and the lender cuts your note rate, typically by about a quarter of a percentage point per point. The lender gets cash today; you get a cheaper payment every month for as long as the loan lives. Whether that exchange favors you rests on a single number: how many months of savings it takes to recover the upfront cost, measured against how long you will actually keep the loan.
The calculator runs that comparison directly, then adds a second test that most points advice skips. The same cash spent on points could instead go into a larger down payment, which shrinks the balance and saves interest at the full mortgage rate with no break-even hurdle at all. Points buy more monthly savings per dollar; the down payment pays off from day one. Which route wins depends on your holding period, and the section below puts exact numbers on the flip.
Variables in plain terms. The loan amount is the balance you are financing, and points are priced off that amount, not the home price. The reduction per point is whatever your lender's rate sheet offers; this page defaults to the commonly quoted 0.25 percent but treats it as an input for a reason explained below. The holding horizon is how many years you expect this specific loan to survive, which means until you sell, refinance, or pay it off, not merely until you move and keep the mortgage.
One honest limitation of the break-even line: it counts each dollar of monthly savings at face value and ignores what the cash could earn elsewhere. That is deliberate. The alternative return you could earn on the points money varies with what you would do with it, and the down-payment comparison later in this page handles the most important alternative explicitly, at the mortgage rate itself.
Take a $320,000 loan at 7.28 percent, the average 30-year fixed rate in the Freddie Mac Primary Mortgage Market Survey as of October 1, 2026. Two points cost $6,400 at closing. If each point buys 0.25 percent, the note rate falls to 6.78 percent, and the principal-and-interest payment drops from $2,189.48 to $2,081.90, a savings of $107.58 every month. Dividing the $6,400 cost by that savings gives a break-even of 59.5 months, almost exactly five years.
| Result at the defaults | Amount |
|---|---|
| Cost of 2 points | $6,400.00 |
| Note rate after points | 6.78% |
| Monthly payment without points | $2,189.48 |
| Monthly payment with points | $2,081.90 |
| Monthly savings | $107.58 |
| Break-even point | 59.5 months (about 5.0 years) |
| Net benefit if kept 7 years | $2,636.72 |
| Total interest saved over the full 30-year term | $38,728.82 |
The holding period swings the verdict more than anything else on this page. Sell or refinance at two years and the trade is $3,818.08 underwater; at four years it is still $1,236.16 short. The break-even passes just before month sixty, and from there the trade compounds quietly: $6,509.61 ahead at ten years and $32,328.82 over the full thirty.
| Years you keep the loan | Net benefit of 2 points |
|---|---|
| 2 | −$3,818.08 |
| 3 | −$2,527.12 |
| 4 | −$1,236.16 |
| 5 | +$54.80 |
| 7 (default) | +$2,636.72 |
| 10 | +$6,509.61 |
| 30 | +$32,328.82 |
Points articles stop at the break-even, but break-even against what? The $6,400 you hand the lender has an obvious rival use: as an extra down payment, which shrinks the loan to $313,600 and saves interest at the full 7.28 percent with no waiting period. Running both routes side by side on the same loan, with the same cash spent either way and savings counted at face value, produces a table that surprises most borrowers.
| Holding period | 2 points vs. same $6,400 as extra down payment |
|---|---|
| 5 years | Down payment ahead by $611.53 |
| 7 years | Points ahead by $1,759.43 |
| 10 years | Points ahead by $5,346.86 |
The pattern makes sense once you see the mechanics. The down payment starts working immediately, amortizing $6,400 of extra principal at 7.28 percent, while the points route spreads its advantage one monthly installment at a time and first has to dig out of a $6,400 hole. Early on, the guaranteed return wins; given enough years, the points route's larger monthly savings ($107.58 against $43.79) take over and compound. At the default seven-year horizon the payment also matters beyond the math: the points route leaves your monthly obligation $63.79 lower than the down payment route, which can help with debt-to-income qualification. The rule of thumb this table supports: if a move or refinance within five years is realistic, the down payment is the safer spend of the same cash.
The 0.25 percent benchmark is a convention, and the Consumer Financial Protection Bureau is explicit that discount points have no fixed value in terms of the rate change; the number on your Loan Estimate is the only one that counts. Thin pricing turns a good trade into a bad one without changing how it looks. Cut the reduction to 0.125 percent per point on the same $320,000 loan and two points still cost $6,400 but save only $54.06 a month, stretching break-even to 118.4 months, nearly ten years, and leaving you $1,858.95 behind after seven. The calculator's reduction input exists so you can run the exact quote, and the difference between lenders pricing the same market can exceed the entire benefit.
Refinancing risk deserves its own warning. The 30-year rate has moved more than a full point in the past year, from 6.34 percent in October 2025 to 7.28 percent in October 2026 per Freddie Mac, and it can move the other way just as far. Every point you buy at today's rate is money the market can strand: refinance two years in and the trade is $3,818.08 underwater with no refund. Borrowers who expect falling rates should either skip points or shorten the break-even below their realistic refinancing horizon. When a loan does pay off early, one small recovery exists: unamortized points on a refinanced loan become fully deductible in the payoff year under IRS Publication 936.
Finally, a ceiling worth knowing. Under the qualified mortgage points-and-fees test in CFPB Regulation Z, total points and fees on most loans cannot exceed roughly 3 percent of the loan amount, so stacking points eventually runs into the cap regardless of what a rate sheet implies. The monthly mechanics behind any of these figures are the same ones in the amortization calculator, which splits every payment into principal and interest, and the mortgage payoff calculator shows how the lower rate interacts with extra principal payments if you plan to prepay. If the rival use for your cash is a future refinance instead of a down payment, the refinance break-even calculator prices that trade with the same logic.
There is no fixed answer, and any lender who quotes one is rounding. One point always costs exactly 1 percent of your loan amount, but the rate reduction it buys varies by lender, loan type, credit profile, and market conditions; the Consumer Financial Protection Bureau states plainly that discount points have no fixed value in terms of the change in interest rate. A common benchmark is about 0.25 percentage points per point, and this calculator uses it as the default. The benchmark matters because thin pricing kills the trade: at the default $320,000 loan, a generous 0.25 percent per point brings break-even in about 59.5 months, while a stingy 0.125 percent per point stretches it to 118.4 months, and buying two points at that price leaves you $1,858.95 behind after seven years. Always ask the lender to show the exact rate, payment, and point cost for each option side by side on the Loan Estimate.
Often yes, but the timing differs by loan type, per IRS Publication 936. Points paid on a purchase of your main home are generally fully deductible in the year you pay them, provided the loan is secured by the home, paying points is an established business practice in your area, and you itemize. Points paid on a refinance cannot be deducted all at once: you amortize them ratably over the loan term, deducting roughly one-thirtieth per year on a 30-year loan. One recovery rule helps: if you sell or refinance and the loan is paid off early, you can deduct all remaining unamortized points in that year. Two practical caveats: you only benefit if you itemize, and after the standard deduction roughly doubled under the Tax Cuts and Jobs Act, only about one in ten filers does; and the deduction reduces the break-even math only by your marginal tax rate, so a 22 percent bracket payer recovers at most 22 cents on the point dollar.
It is closer than most articles admit, and the winner depends on how long you keep the loan. At this calculator's defaults ($320,000 loan at 7.28 percent, two points costing $6,400), the head-to-head shows the down payment route ahead by $611.53 at the five-year mark, points ahead by $1,759.43 at seven years, and points ahead by $5,346.86 at ten years. The pattern has a reason: extra down payment shrinks the balance immediately and earns the mortgage rate as a guaranteed, risk-free return from day one, while points spread their savings evenly over the years, so they need time to pull ahead. Both routes beat keeping the cash in checking. The honest summary: if there is a real chance you move or refinance within five years, take the down payment; if you are confident about a decade or more, points edge ahead, and they also lower the payment more each month, which can matter for qualification.
The money is gone. Points buy a rate reduction on one specific loan, and a payoff ends that contract, which is why holding period is the single most important input on this page. At the default example, selling or refinancing at two years leaves you $3,818.08 behind on the points trade; waiting until the 59.5-month break-even recovers the cost, and every month after is profit. A refinance deserves special care in a falling-rate market: borrowers who paid points at 7.28 percent and refinance when rates drop wipe out the very reduction they paid for. If rates are trending down, either skip points or keep the term short enough to beat the break-even. One partial consolation: on a refinance, unamortized points you had been deducting over time become fully deductible in the year the loan pays off, per IRS Publication 936.
The same trade run in reverse. A lender credit, sometimes called negative points, means the lender pays part of your closing costs in exchange for a higher interest rate. Instead of handing over cash to buy the rate down, you accept a costlier rate and receive money at closing. This suits borrowers who are short on closing cash and expect to refinance or sell soon, because a higher rate costs little over a short hold. The same break-even logic applies with the sign flipped: figure out how much the higher rate adds to the monthly payment, and how many months of that excess the credit covers. Note that federal rules treat the two differently at tax time: lender credits reduce your basis or closing costs rather than creating a deduction, while deductible points follow the IRS Publication 936 rules.
Because both the cost and the monthly savings scale linearly with the number of points, their ratio barely moves. At the default loan, one point costs $3,200 and saves $54.06 a month, a break-even of 59.2 months; four points cost $12,800 and save $212.94 a month, a break-even of 60.1 months. The drift is tiny and comes only from the payment formula's curvature. The practical takeaway is that adding points multiplies your exposure without changing your payback speed: if 59 months is too long for your plans, the answer is to negotiate a better reduction per point or skip points entirely, never to buy fewer of them. Also mind the ceiling: under the qualified mortgage points-and-fees test in CFPB Regulation Z, total points and fees on most loans are capped around 3 percent of the loan amount, so stacking points eventually runs into the cap as well.