Should you buy mortgage points to lower your rate? Calculate the upfront cost of points, monthly savings, break-even timeline, and total savings over the life of the loan. See whether buying points makes financial sense based on how long you plan to stay.
Discount points are prepaid interest. You hand the lender extra money at closing — typically 1% of the loan amount per point — and in exchange they lower your interest rate for the life of the loan. The trade is essentially a bet: you spend dollars today to save dollars every month, and the bet pays off only if you keep the loan long enough for the monthly savings to add up to more than the upfront cost.
The math is straightforward. Each point costs 1% of the loan, and a typical point reduces the rate by roughly 0.25%. On a $350,000 loan, two points cost $7,000 upfront and might lower the rate by 0.5%. The monthly payment drops, sometimes by $100 or more, and the break-even is the number of months it takes for those payment savings to recoup the $7,000.
This calculator does the comparison: payment without points vs. payment with points, total upfront cost, monthly savings, break-even month, and total interest saved over the period you plan to stay in the home. The answer hinges almost entirely on how long you actually keep the loan — and refinancing or selling resets the math.
$350,000 loan, 30-year, 7.0% without points / 6.5% with 2 points Cost of 2 points: $7,000 Monthly payment without points: $2,329 Monthly payment with points: $2,212 Monthly savings: $117 Break-even: 60 months (5 years) Net savings if you stay 10 years: $7,040 Net savings if you stay 30 years: $35,120 A clean case where points pay off — provided you actually stay past the 5-year break-even.
Same $350,000 loan, but you plan to relocate for work in 3 years. Cost of 2 points: $7,000 Monthly savings over 3 years: $117 × 36 = $4,212 Net result if you sell at year 3: − $2,788 (you lose $2,788) The math flips. At a 3-year horizon, the points cost more than they save. Even worse, if you refinance the same year because rates drop, the prepaid interest is gone and you have nothing to show for it.
$500,000 loan. 0.5 points to drop rate from 6.75% to 6.625% (1/8 point reduction). Cost: $2,500 Monthly savings: ≈ $42 Break-even: 60 months A small fractional buy-down can make sense if you have closing cash to spare and a long horizon, and the entire $2,500 is deductible in the year of purchase (under current IRC §461 rules for owner-occupied purchase loans). The deduction can offset some of the upfront cost depending on your marginal tax rate.
Use this calculator before locking in a rate or signing a loan estimate. Lenders typically present a "pricing menu" with several rate-and-point combinations — no points at one rate, 1 point at a lower rate, 2 points at a lower rate still — and the right choice depends on how long you'll actually keep the loan.
Buying points makes the most sense when: (1) you have ample closing cash beyond the down payment, (2) you intend to live in the home a long time (10+ years), (3) interest rates seem low enough that refinancing in the near future is unlikely, and (4) you're in a high tax bracket where the prepaid-interest deduction has real value.
Skip points when: you might sell within 5 years, you might refinance because rates could fall, you're stretching to make the down payment (the cash is better in reserve), or the break-even period exceeds half your planned holding time.
Pair this with the mortgage-payment calculator (to see the monthly payment of each combo), the closing-costs calculator (since points show up there), and the refinance calculator (to compare prepaid interest now vs. a future refinance later).
Calculate your monthly mortgage payment including principal, interest, taxes, and insurance.
Compare your current mortgage with a new loan to see monthly savings and break-even point.
Estimate closing costs when buying a home including lender fees, title, and prepaids.
Project your home's future value based on purchase price and annual appreciation.
Calculate private mortgage insurance costs and see when PMI drops off your loan.
Calculate FHA loan payments including upfront and annual mortgage insurance premiums.
1 point = 1% of loan amount
Cost of Points
$7,000
Monthly Savings
$116
Break-Even
61 months
Net Savings (Stay Period)
$6,958
| Year | Cumulative Savings | Net Savings |
|---|---|---|
| 1 | $1,395.85 | $-5,604.15 |
| 2 | $2,791.70 | $-4,208.30 |
| 3 | $4,187.54 | $-2,812.46 |
| 4 | $5,583.39 | $-1,416.61 |
| 5 | $6,979.24 | $-20.76 |
| 6 | $8,375.09 | $1,375.09 |
| 7 | $9,770.93 | $2,770.93 |
| 8 | $11,166.78 | $4,166.78 |
| 9 | $12,562.63 | $5,562.63 |
| 10 | $13,958.48 | $6,958.48 |