Mortgage points calculator: is it worth it to pay points?

A lender shows you a lower rate that costs money up front. This mortgage points calculator runs my three-number test on it, Gap, Savings, Break-Even: the gap is what the points cost, the savings are how much they lower your payment each month, and the break-even is how many months it takes the savings to pay back the cost.

Should I buy points on my mortgage? Run the break-even

Divide the cost by the monthly savings. That’s your break-even in months. Then hold it up against how long you’ll really keep the loan. Points are a permanent buydown: they lower the rate for the life of the loan, but the cash goes to the lender. It doesn’t pay down your balance or build equity.

One point on a $320,000 loan

	Cost of the points (1% of the loan)	$3,200
÷	Monthly savings ($2,076 at 6.75% vs $2,023 at 6.5%)	$53
=	Months to break even	61

Hypothetical example at example rates, rounded up to the next month. Not a quote.

How to use the mortgage points calculator

• Loan amount. What you’re borrowing, after your down payment.
• Points you would pay. One point is 1% of the loan. Enter what you’re quoted, including fractions like 0.5 or 1.375.
• Rate with no points. The par rate on the same day’s quote, the one that costs nothing and pays nothing.
• Rate with the points. The lower rate those points buy.
• Years you expect to keep the loan. Your honest guess, counting the chance you refinance.

One adjustment the calculator can’t make for you: if the higher rate came with a lender credit, add the credit you’d give up to the points. Going from a rate that pays you half a point to one that costs a point is a 1.5-point gap. On the defaults, that turns 61 months into 91.

What the calculator assumes

• Principal and interest only, on a 30-year fixed unless you pick another term. Mortgage insurance and taxes are the same at either rate, so they’re left out.
• The savings stay flat every month, and the cash earns nothing elsewhere.
• “Come out ahead” is simple math: the monthly savings times the months you keep the loan, minus the cost.

How to read your result

The big number is the months to break even. Under it, the pad tells you what happens at your timeline. Keep the default loan seven years and you come out about $1,243 ahead. Sell or refinance before month 61 and the points cost you money, and a refinance is the part people forget: it starts the clock over, which is why I check when a refinance would make sense before anyone pays points on a loan they might replace.

What changes it: the price of each step down. If every quarter point costs the same, buying more just repeats the break-even. Two points for 6.25% saves about $105 a month and still takes 61 months, and half a point for 6.625% saves about $27 and takes 61 too. Buying more doesn’t fix a slow break-even. A cheaper step does, and so does a longer hold.

Points, buydowns and paying down the loan: which one is this?

• Discount points (this calculator): a lower rate for the life of the loan, paid up front.
• A temporary buydown: a lower payment for one to three years, usually paid by the seller. Run it in the temporary buydown calculator.
• Paying down principal: a smaller loan. At an example 6.75%, each $1,000 lowers the payment about $6.50 a month, and that money stays yours as equity.
• A lender credit: the reverse of points. You take a higher rate, and the lender pays part of your closing costs.

The full breakdown is in points, credits and buydowns. Points are priced off the day’s rate sheet, so nothing is set until you lock; here’s how a rate lock works.

Questions people ask me about this

How much does a quarter point lower rate cost?

It changes every day, because it comes off that day’s rate sheet. In my files one point has bought anywhere from about a quarter to about half a point of rate. On this calculator’s $320,000 example, a quarter point is worth about $53 a month, so it’s only worth paying for if the cost earns back fast.

Is it worth paying points if I might refinance in a couple of years?

Usually not. If you refinance at month 24, the default point has paid back about $1,270 of its $3,200 cost, and the rest is gone. The new loan doesn’t care what you paid for the old rate.

Is it better to put more money down or buy points?

On the calculator’s $320,000 example, $3,200 of points saves about $53 a month, while the same $3,200 as extra down payment saves about $21. But the down payment stays yours as equity, and points go to the lender for good, so run both. Keeping the cash as reserves is a third option, and often the one I’d pick.

Can the seller pay for my points?

Yes. A seller credit can pay discount points within your loan program’s limit on seller money, and it has to be written into the contract. Seller-paid points are where I say yes most often, because it isn’t your cash on the line. Here’s how to ask for seller credits.

Sources

• Fannie Mae Selling Guide B3-4.1-02, interested party contributions
• HUD Handbook 4000.1 (Update 18), interested party contributions