Mortgage Points Breakeven Calculator
Find out how long it takes for the monthly savings from buying mortgage discount points to repay their upfront cost.
How to use this tool
- Enter the loan amount, the rate without points, and the term.
- Enter how many points you would buy and how much each lowers your rate.
- Read the upfront cost, your new rate and monthly savings, and the breakeven month.
- Buy points only if you expect to keep the loan past the breakeven point.
Lenders let you buy a lower rate by paying discount points upfront. This calculator shows how many months of lower payments it takes to earn that cost back, so you can tell whether points are worth it for how long you will keep the loan.
Formula
Cost of points = points × 1% × loan amount.
New rate = base rate − (points × rate cut per point).
Monthly savings = payment at the base rate − payment at the new rate, each using M = P · r / (1 − (1 + r)−n).
Breakeven months = cost of points ÷ monthly savings. If you keep the loan longer than the breakeven point, the points pay off.
How it works
Discount points are prepaid interest: you pay a lump sum at closing to buy a lower rate. Each point costs 1% of the loan and typically shaves about a quarter point off the rate, though the exact reduction varies by lender — so it is an input here. The calculator computes the monthly payment at both the base and bought-down rate, takes the difference as your monthly savings, and divides the points' cost by that savings to find the breakeven month.
Points make sense only if you keep the loan past breakeven. If you sell or refinance sooner, the upfront cost outweighs the savings. This estimate compares payments alone; it does not value the time cost of the cash spent, possible tax deductibility of points, or how a lower balance over time changes the absolute interest saved. Treat the breakeven month as the key decision threshold.
Reviewed by the AbraCalc Mortgage Desk. Educational estimate only, not financial or tax advice; confirm the rate reduction and point cost in your lender's loan estimate.
Worked example
$300,000 at 7%, buying 2 points (0.25% each)
- Cost of points = 2 × 1% × 300,000 = $6,000.
- New rate = 7% − (2 × 0.25%) = 6.50%.
- Payment at 7% = $1,995.91; payment at 6.50% = $1,896.20.
- Monthly savings = 1,995.91 − 1,896.20 = $99.70.
- Breakeven = 6,000 ÷ 99.70 = 60.18 months (about 5 years).
Breakeven in 60.18 months, $6,000 cost, rate 6.50%, monthly savings $99.70
Breakeven on a $300,000 30-year loan (7% base, 0.25%/point)
| Points | Cost | Rate with points | Monthly savings | Breakeven |
|---|---|---|---|---|
| 0.5 | $1,500 | 6.88% | $25.12 | 59.7 mo |
| 1 | $3,000 | 6.75% | $50.11 | 59.9 mo |
| 1.5 | $4,500 | 6.62% | $74.97 | 60.0 mo |
| 2 | $6,000 | 6.50% | $99.70 | 60.2 mo |
| 3 | $9,000 | 6.25% | $148.76 | 60.5 mo |
Key terms
- Discount point
- An upfront fee equal to 1% of the loan that buys a lower interest rate.
- Breakeven period
- The number of months of payment savings needed to recoup the cost of the points.
- Rate buydown
- Reducing the interest rate by paying points at closing.
- Loan estimate
- The standardized lender disclosure that lists the rate, points, and closing costs.
Frequently asked questions
- What is a mortgage discount point?
- One point costs 1% of the loan amount and lowers your interest rate, usually by about 0.25 percentage points. You pay it at closing in exchange for a smaller monthly payment.
- How do I know if buying points is worth it?
- Compare the breakeven month to how long you plan to keep the loan. If you will keep it well past breakeven, the cumulative payment savings exceed the cost and points pay off.
- Are mortgage points tax deductible?
- Points on a primary-residence purchase may be deductible, sometimes in the year paid and sometimes over the life of the loan. Rules vary, so consult the IRS or a tax professional.