What are mortgage discount points?

Mortgage discount points are upfront fees paid to the lender at closing to reduce your interest rate. Each point costs 1% of the loan amount and typically lowers your rate by 0.125% to 0.25%. For example, on a $350,000 loan, one point costs $3,500.

How do I calculate the break-even on mortgage points?

Divide the upfront cost of points by the monthly savings: Break-Even Months = Points Cost / Monthly Savings. For example, if you pay $7,000 for 2 points and save $87/month, your break-even is 80 months (6.7 years). If you stay in the home longer, buying points saves money.

Are mortgage points tax deductible?

Yes, discount points paid on a primary home purchase are generally fully deductible in the year paid (IRS Publication 936). Points paid on a refinance must be deducted ratably over the loan term. Always consult a tax professional for your specific situation.

How many mortgage points should I buy?

The ideal number depends on your expected hold period. If you plan to sell or refinance in 5 years, buying points may not make sense if the break-even is 7 years. Use the Optimal Points tab in our calculator to find the point count that maximizes your net savings based on your time horizon.

What is the difference between origination points and discount points?

Origination points are lender fees for processing your loan — they do not reduce your rate. Discount points are prepaid interest that permanently reduces your interest rate. Both cost 1% of the loan per point, but only discount points lower your monthly payment. Make sure you know which type your lender is quoting.

Mortgage Points Calculator

Find out exactly when buying discount points pays off — compare 0–3 point scenarios side-by-side, see your break-even month, and determine the optimal number of points based on how long you'll keep the loan.

Loan Amount

Rate Without Points

Number of Points

pts

Cost Per Point

% of loan

Rate Reduction Per Point

Loan Term

New Interest Rate

6.5%

Down from 7.0% — saving $116/mo

Upfront Points Cost

$7,000

New Monthly Payment

$2,212

Monthly Savings

$116

Break-Even Month

Month 61

Advanced

Advanced Calculator

Point scenarios side-by-side, break-even chart, what-if analysis

Compare 0–3 points on your $350,000 loan. Base rate: 7.0%.

No Points

$2,329/mo

Rate: 7.0%

Upfront cost: $0

Monthly savings: $0

No break-even (no savings)

30-yr interest saved: $0

1 Point

$2,270/mo

Rate: 6.8%

Upfront cost: $3,500

Monthly savings: $58

Break-even: Month 60 (Yr 5.0)

30-yr interest saved: $21,048

2 Points

$2,212/mo

Rate: 6.5%

Upfront cost: $7,000

Monthly savings: $116

Break-even: Month 61 (Yr 5.1)

30-yr interest saved: $41,875

3 Points

$2,155/mo

Rate: 6.3%

Upfront cost: $10,500

Monthly savings: $174

Break-even: Month 61 (Yr 5.1)

30-yr interest saved: $62,477

Pro

Professional Simulator

Total cost analysis, tax impact, optimal points based on hold period

Full 30-year total cost comparison for your $350,000 loan.

Without Points

$838,281

Rate: 7.0%

Monthly: $2,329

Total interest: $488,281

Upfront: $0

With 2 Points

$803,406

Rate: 6.5%

Monthly: $2,212

Total interest: $446,406

Upfront cost: $7,000

Total Interest Saved

$41,875

Over 30 years

Net Savings (after cost)

$34,875

Interest saved minus points paid

Break-Even

Month 61

Year 5.1

Points Cost

$7,000

2 pts × 1.0% of loan

How to Use This Mortgage Points Calculator

Enter your loan details and point parameters to see whether buying discount points makes financial sense.

Quick Calculator

Input your Loan Amount, Rate Without Points, Number of Points, Cost Per Point (typically 1% of loan), and Rate Reduction Per Point (usually 0.125%–0.25%). The calculator shows your new rate, new monthly payment, monthly savings, upfront cost, and the exact month you break even on your investment.

Advanced — Point Scenarios

The Point Scenarios tab compares 0, 1, 2, and 3 points side by side, showing the rate, monthly payment, upfront cost, monthly savings, and break-even month for each. The Break-Even Chart visually plots cumulative savings vs your upfront cost over the loan term — the point where the blue line crosses the red dashed line is your break-even.

Professional — Total Cost Analysis, Tax Impact, Optimal Points

The Total Cost Analysis shows the full 30-year cost with and without points. The Tax Impact tab factors in the deductibility of points on a purchase, reducing your effective cost and shortening your break-even. The Optimal Points tab runs every half-point increment (0–4 points) against your expected hold period to identify which number of points produces the highest net savings.

How Mortgage Points Are Calculated

Cost of Points = Loan Amount × (Cost Per Point / 100) × Number of Points

New Rate = Base Rate − (Rate Reduction Per Point × Number of Points)

Monthly Savings = Payment(Base Rate) − Payment(New Rate)

Break-Even Months = Points Cost / Monthly Savings

Example:
Loan: $350,000 | Base Rate: 7.00% | 2 Points at 1% each, 0.25% reduction/pt
Points Cost = $350,000 × 1% × 2 = $7,000
New Rate = 7.00% − (0.25% × 2) = 6.50%
Payment at 7.00%: $2,329/mo → Payment at 6.50%: $2,213/mo
Monthly Savings = $116/mo
Break-Even = $7,000 / $116 = 60 months (5 years)

Example: Should Alex Buy Points?

Alex takes a $400,000 mortgage and plans to stay 8 years — Austin, TX

Alex is quoted 7.25% with no points or 6.75% with 2 points. Each point costs $4,000 (1%), so 2 points costs $8,000.

Loan Amount	$400,000
Rate (no points)	7.25%
Rate (2 points)	6.75%
Points Cost	$8,000
Monthly Savings	$118/month
Break-Even	68 months (5.7 years)
Alex's Hold Period	8 years (96 months)
Net Savings at Year 8	+$3,328
30-Year Interest Saved	$42,480

Since Alex plans to stay 8 years and breaks even at 5.7 years, buying 2 points makes financial sense — netting $3,328 before tax benefits. After factoring in the tax deduction at a 22% rate, the effective break-even drops to about 5 years.

Frequently Asked Questions

Mortgage discount points are upfront fees paid to the lender at closing to permanently reduce your interest rate. Each point costs 1% of the loan amount. On a $350,000 loan, one point = $3,500. Lenders typically offer a rate reduction of 0.125%–0.25% per point, though this varies. Points are different from origination fees — those are processing charges that don't lower your rate.

Break-even months = Points Cost ÷ Monthly Savings. If you pay $7,000 for 2 points and save $87/month, break-even is 80 months (6.7 years). If you stay longer, you come out ahead. If you sell or refinance before break-even, you lose money on the points. The break-even shortens if you account for the tax deductibility of points on a purchase.

Yes, under IRS Publication 936, discount points paid on a primary home purchase are generally fully deductible in the year paid — even if the seller paid them on your behalf. Points on a refinance must be deducted over the loan term. The tax benefit can meaningfully reduce your effective cost and break-even period. Consult a tax advisor for your situation.

The optimal number depends on your expected hold period. Use the Optimal Points tab to find the sweet spot for your timeline. As a rule of thumb: if you plan to stay more than 7 years, 1–2 points often makes sense. If you're likely to sell or refinance within 3–5 years, paying points usually doesn't pay off. Also consider whether you have the cash — using savings for points that could go toward the down payment may not be optimal.

Origination points are lender fees for processing your loan — they cost the same (1% per point) but do NOT reduce your interest rate. Discount points are prepaid interest that permanently lowers your rate. When comparing lender offers, make sure you distinguish which type of points are being quoted. The Loan Estimate form (required by federal law) separates these into distinct line items.