Mortgage Points Break-Even Calculator
How long you must keep the loan before points pay for themselves
A mortgage points calculator that finds your break-even, including what those dollars would have earned invested instead of buying down the rate.
How this is calculated
Discount points are prepaid interest. You hand the lender a percentage of the loan at closing and they reduce your rate for the life of the loan. One point costs 1% of the loan amount and typically buys about a quarter of a percentage point off the rate, though this varies by lender and by market conditions.
Whether that is a good trade comes down to one number: how long you keep the loan. Below the break-even point you have simply given the lender money. Beyond it, you are ahead — and the further beyond, the better it looks.
pointsCost = loan × (points / 100)
newRate = rate − (points × reductionPerPoint)
monthlySaving = payment(loan, rate) − payment(loan, newRate)
breakEvenMonths = pointsCost / monthlySaving
opportunity cost: futureValue(pointsCost, investmentRate, term)
compared against total interest saved
Worked example
A $400,000 loan, 6.75% falling to 6.50% for one point costing $4,000.
The average mortgage does not last 30 years
Most borrowers sell or refinance long before the term ends — historically somewhere between seven and ten years, and much sooner in a falling-rate environment. A break-even of five years sounds comfortable against a 30-year term, but it is uncomfortably close to how long people actually keep loans. Be honest about your own horizon rather than the nominal term.
Refinancing destroys the investment
Points buy a lower rate on this loan. Refinance and that rate is gone, along with any unrecovered portion of what you paid. If there is a realistic chance rates fall enough to refinance within your break-even window, points are a poor bet.
Points versus a larger down payment
The same cash put toward the down payment reduces the loan amount, which reduces the payment too — and it may push you below 80% loan-to-value and eliminate mortgage insurance entirely. Where PMI is in play, that comparison often beats points outright.
The tax angle
Points on a primary residence purchase are generally deductible in the year paid, if you itemize. On a refinance they must usually be amortized across the loan term. With the standard deduction as high as it is, many borrowers get no benefit at all — do not assume a deduction that you will not actually claim.