π Mortgage Points Break-Even Calculator
Do discount points pay off for you? Find the month they start saving you money.
Tip: 1 point = 1% of the loan. 2 points on this loan = .
Break-Even Month
Estimates for planning only, not financial advice. Assumes a 30-year fixed-rate mortgage.
How to Use This Calculator
Enter your loan amount, the two rates your lender quoted (with and without points), the dollar cost of the points, and how long you realistically expect to stay in the home. The calculator shows both monthly payments, your monthly savings, the month the points pay for themselves, and whether they come out ahead over your expected stay.
Enter the Loan Amount and your Expected Years in Home. Be realistic: the median homeowner moves or refinances within about 7 to 10 years, and the break-even math punishes optimistic stays.
Enter the Base APR (no points) and the Discounted APR (with points) from your Loan Estimate. Both must be for the same loan type and term to compare fairly.
Enter the Points Cost in dollars from your Loan Estimate. Remember that 1 point equals 1 percent of the loan amount, so 2 points on a $400,000 loan is $8,000.
Read the break-even month and the verdict. If break-even lands before you expect to sell or refinance, points pay off. If it lands after, skip them.
What Discount Points Really Are
Discount points are prepaid interest: cash you hand the lender at closing in exchange for a lower rate for the life of the loan. A common trade is 1 point (1 percent of the loan) for a 0.25 percent rate reduction, but the market moves this constantly. On a $400,000 loan, 2 points cost $8,000 and might drop your rate from 6.75 to 6.25 percent, saving roughly $130 a month. The question is never whether the monthly savings are real, they are. The question is whether you keep the loan long enough to recover the $8,000.
Points are not the same as origination or lender fees, which buy you nothing but a funded loan. Only discount points reduce your rate, and your Loan Estimate lists them on page 2 so you can see exactly what you are paying for. Lender credits work in reverse: the lender gives you cash at closing and you accept a higher rate, which can make sense for a short stay.
Worked Example
$400,000 loan, 30-year fixed. Base rate 6.75 percent: monthly P&I = $2,594.39. Discounted rate 6.375 percent with 2 points ($8,000): monthly P&I = $2,495.48. Monthly savings = $98.91. Break-even = 8,000 / 98.91 = 80.9 months, so month 81, about 6 years and 9 months. If you stay 10 years (120 months), total savings = $98.91 x 120 - $8,000 = $3,869 in your favor. If you sell or refinance at year 5 (60 months), you recover only $5,935 of the $8,000 and lose $2,065. Same loan, same points, opposite verdicts, decided entirely by how long you stay.
When Points Pay Off, and When They Backfire
Points favor the settled borrower: you plan to stay well past break-even, rates are unlikely to fall enough to justify a refinance, and you have the cash without raiding your emergency fund or shrinking your down payment below 20 percent. They backfire when life intervenes: a job move, a growing family, or a rate drop that makes refinancing attractive all reset the clock to zero, and the points money is gone. Also consider the opportunity cost: $8,000 invested at 7 percent for 10 years grows to about $15,700, which can beat the points savings. And points on a purchase are generally tax-deductible as mortgage interest in the year paid, which softens the upfront cost if you itemize. Run your own numbers above, then ask your lender for the same trade at 0, 1, and 2 points: the break-even pattern across the three quotes tells you more than any single number.
Estimates for planning only, not financial advice. Tax treatment of points varies; consult a tax professional.
Frequently Asked Questions
What are mortgage discount points?
Discount points are prepaid interest you pay at closing to lower your mortgage rate. One point costs 1 percent of the loan amount and typically reduces the rate by 0.125 to 0.25 percentage points, though the exact trade varies by lender and market. They are different from origination points, which are lender fees that do not change your rate.
How do I find my break-even point?
Divide the upfront cost of the points by your monthly savings. If points cost $6,000 and save you $75 a month, your break-even is 80 months, or about 6 years and 8 months. Stay longer than that and the points pay for themselves. Sell or refinance before then and you lose money.
Are mortgage points tax deductible?
In the US, discount points on a purchase mortgage are generally deductible as mortgage interest in the year you pay them, if the loan is for your primary residence and paying points is customary in your area. Points paid on a refinance are usually deducted gradually over the life of the loan. Tax rules change, so confirm with a tax professional for your situation.
When do points NOT make sense?
Points lose money if you sell or refinance before the break-even month, which is the most common mistake. They also make less sense if you could earn a strong return by investing the points money instead, or if the cash would be better used as a larger down payment to avoid PMI. Short expected stays and uncertain plans favor skipping points.
Can I negotiate the points-to-rate trade?
Yes, within limits. Lenders price points based on the bond market, but the exact rate reduction per point varies between lenders, so shopping multiple Loan Estimates is the best way to find a better trade. Some lenders also offer lender credits, which are negative points: they pay you cash at closing in exchange for a higher rate.
Do points affect my APR?
Yes. The APR disclosure includes points, so a loan with points shows a higher APR than the note rate suggests, which is the point of the disclosure: it reflects the true cost if you keep the loan for the full term. That is also why APR comparisons are misleading if you plan to sell or refinance early.