Mortgage Points Calculator
Mortgage points, also called discount points, are fees paid upfront at closing to lower your interest rate. Each point typically costs 1% of your loan amount and reduces your rate by 0.25%. The key question is whether the long-term savings justify the upfront cost.
How Points Work
When you buy points, you're prepaying interest on your loan. This reduces your monthly payment and total interest paid over the life of the loan. The lender uses the points payment to "buy down" your interest rate.
Calculating the Value
- Monthly Savings: Difference between payments with and without points
- Break-Even Point: Time needed for savings to equal upfront cost
- Total Savings: Cumulative savings over your ownership period
- Net Benefit: Total savings minus upfront cost
Factors to Consider
- Ownership Timeline: Longer ownership favors buying points
- Cash Availability: Must have funds available at closing
- Tax Benefits: Points may be deductible if you itemize
- Alternative Uses: Compare to investing the money elsewhere
- Market Conditions: Points are more valuable in high-rate environments
Points vs. Rate Shopping
Many borrowers can get a lower rate by shopping around rather than buying points. Compare the cost of points to the rate reduction you could get by changing lenders. Often, shopping for the best rate is more cost-effective than buying points.
Tax Treatment
Mortgage points are generally tax-deductible in the year you pay them, but only if you itemize deductions on your tax return. The deduction is spread over the life of the loan for points paid on refinance loans.
Tips
Tip: Use this calculator to determine if buying points makes financial sense for your situation. Points are most valuable when you plan to keep the loan long-term and have the cash available at closing.