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For tips on using the mortgage points calculator, click here.
Is it worth it to pay points on a mortgage?
By calculating your break-even point, our mortgage points calculator determines if buying points pays off. The break-even point is when you’ve paid off the cost of buying the points. From then on, you’ll enjoy the savings from your lower interest rate.
To find the break-even point, the calculator determines your monthly savings from buying points and divides the total cost of the points by that amount. For example:
On a $300,000 loan with a 7% interest rate, purchasing one point brings the mortgage rate to 6.755%, dropping the monthly payment from $1,996 to $1,946 — a monthly savings of $50. The cost: $3,000. The calculator divides the cost by the monthly savings amount to find the break-even point.
$3,000/$50 = 60 months (5 years)
So is buying points worth it? The answer starts with determining how long you plan to stay in the home and whether you'll hit the break-even point. But you should also consider your personal financial goals. Perhaps you'd rather use that money for other purposes, like making a larger down payment or paying for home repairs. An alternative goal doesn't have to be housing-related; for example, maybe you want to invest those funds instead of buying points.
Keep in mind that, in a buyer's market, the seller may offer to pay some or all of your mortgage points. Talk to your real estate agent to find out if this might be possible.
Buying points could be helpful if:
You have enough cash to make your desired down payment and still have some left for lowering the rate.
You expect to keep the loan long enough that you’ll exceed the break-even point (meaning you won't move or refinance within a given time frame).
You're trying to reduce the size of your monthly mortgage payment.
But buying points might not be the best move if:
You plan to sell the home or refinance before you’ve hit your break-even point.
You need the cash you’d use to buy points for something else.
The monthly savings are so small that it doesn’t make a meaningful dent in your budget (even if you reach the break-even point).
Another case when you might reconsider buying points: You'll hit the break-even point, but it won't be for a long time. Given how long it will take you to enjoy the savings from buying points, you may decide you're better off using the money you would have spent on points elsewhere.
What do points on a mortgage mean?
There are two kinds of mortgage points:
Discount points. Points usually means “discount points” — the fees you pay a lender to lower your home loan’s interest rate. This mortgage points calculator lets you look at the impact of buying discount points. You can buy points any time you get a new home loan, whether you are purchasing or refinancing. It’s sometimes called “buying down” your rate. Lowering your interest rate reduces the size of your monthly payments.
Rebate points. Another kind of points are “negative points” or “rebate points.” In a no-closing-cost mortgage, instead of paying closing costs upfront, these fees are built into the loan. Sometimes they're simply added to the loan amount, and other times the lender raises the interest rate to cover these costs. While you would need less money to close on the home, these loans come with higher monthly payments.
How much is one point on a mortgage?
One mortgage point typically costs 1% of your loan total (for example, $3,000 on a $300,000 mortgage). With this example, if you bought two points, you’d pay $6,000 when your mortgage closes.
The cost of mortgage points is in addition to paying closing costs, which generally are between 2% and 6% of the mortgage amount. On a $300,000 loan, that would be $6,000 to $18,000.
Are mortgage points tax-deductible?
Yes. You can deduct mortgage interest on up to $750,000 worth of your home loan (or $375,000 if you're married and filing separately), so if you qualify to deduct interest, you should also qualify to deduct at least some of the cost of mortgage points. Depending on your specific circumstances, you may be able to deduct the cost in one tax year or you may need to spread out the deductions over the life of the loan. A tax pro can help you figure out eligibility.
Using the mortgage points calculator
How this calculator works
To use the mortgage points calculator, type your information into these fields:
Desired loan amount.
Loan term (years).
Interest rate without points (shown as a percent). Not sure? Take a look at current interest rates to get an estimate.
Number of points. (This is required to deliver your results).
Interest rate with points. This shows what your rate would be if you paid for that number of points. The mortgage points calculator assumes that your interest rate will drop by a quarter of a percentage point for each point purchased, since that's what lenders usually offer. But maybe a lender has shown you a different rate with this number of points. If so, edit this field to ensure the accuracy of your results.
When you submit a mortgage application, lenders are required to send you a Loan Estimate within three business days. This standard form shows how much your loan costs, including mortgage points, should be. The Loan Estimate is especially handy for comparing offers from different lenders, though it's important to remember that the actual costs can change. You'll get a revised copy with the actual costs, called the Closing Disclosure, no less than three business days before your loan closes.
Understanding your results
Break-even period (years). This shows how many years it will take before you’ve paid off the points you purchased and when you’ll start saving money from the lower interest rate.
Break-even period (months). This is the same as in the previous result, shown in a different way: The number of months before your break-even point.
Payment required to buy points. Your cost to buy the number of points entered above. One point usually costs one percent of the total amount you're borrowing, so on a $300,000 mortgage, one point would be $3,000.
Monthly savings with points. Once you pay off the cost of the points, this is how much you'll save each month.
Monthly mortgage payment with points. Your new, lower monthly mortgage payment after purchasing points.
Monthly mortgage payment without points. This is your monthly payment if you don’t buy points. Use this result to compare the payments with and without points to see how buying points lowers your monthly payment. To see how much you'd save in interest over the life of the loan, use our amortization calculator.