Are mortgage discount points worth it?

Discount points are worth it if you stay in the home past the break-even date. A break-even of under 24 months is generally an excellent deal; under 5 years is reasonable for most buyers. If you plan to sell, refinance, or move within a few years, avoid points — you will pay upfront without capturing the long-term savings.

How much does one mortgage point cost?

One discount point costs exactly 1% of the loan amount. On a $300,000 mortgage, one point costs $3,000. On a $500,000 mortgage, one point costs $5,000. Points are paid at closing and can sometimes be rolled into the loan amount, though that reduces the benefit.

How much does each point lower the interest rate?

The rate reduction per point varies by lender and market conditions — there is no fixed rule. Typical ranges are 0.125% to 0.375% per point. Some lenders offer 0.25% per point as a standard buydown. Always ask your lender for their specific points-to-rate schedule and compare across multiple lenders.

What is the difference between discount points and origination points?

Discount points are prepaid interest that lower your rate — they are optional and negotiable. Origination points (or origination fees) are lender compensation for processing the loan — they do not lower your rate. When comparing loan offers, look for the total points and fees separately. The Annual Percentage Rate (APR) includes both and helps compare true loan costs.

Can I deduct mortgage points on my taxes?

Discount points paid on a home purchase mortgage are generally tax-deductible in the year paid (for your primary residence), subject to IRS rules under Publication 936. Points paid on a refinance must typically be deducted over the life of the loan rather than all at once. Consult a tax professional for your specific situation, especially for investment properties or second homes.

Should I buy points or use that money for a larger down payment?

If your down payment is below 20%, a larger down payment eliminates PMI — which often delivers a better return than buying points. Once you are at 20% down, compare the break-even on points against investing that cash or building an emergency fund. For high-rate environments where you plan to stay long-term, points can offer guaranteed, tax-advantaged savings that outperform conservative investments.

Mortgage Points Break-Even Calculator

Mortgage discount points let you prepay interest upfront to secure a lower interest rate for the life of your loan. Each point costs 1% of the loan amount and typically reduces your rate by 0.125%–0.375%. The Mortgage Points Calculator shows you the upfront cost, monthly savings, and exact break-even timeline — so you can decide whether buying points makes financial sense given how long you plan to stay in the home.

Loan Amount

Base Interest Rate (No Points)

Discount Points to Buy

pts

Each point costs 1% of the loan amount

Rate Reduction Per Point

Lenders typically offer 0.125%–0.375% per point

Loan Term

Points Cost (Upfront)

$3,500.00

Rate Without Points

7.250%

Rate With Points

7.000%

Monthly Savings

$59.06

Break-Even Point

60 months (5.0 yrs)

Total Interest Saved (Full Term)

$21,260.97

How to use this calculator

1
Enter your loan amount
Input the mortgage amount you are borrowing. Each point will cost 1% of this figure.
2
Enter the base interest rate
Input the interest rate your lender quoted without any discount points.
3
Enter the number of points to buy
Enter how many discount points you are considering purchasing. Common amounts are 0.5, 1, 1.5, or 2 points. You can enter fractions (e.g. 0.25).
4
Enter the rate reduction per point
Input the rate reduction your lender offers per point purchased — typically 0.125% to 0.375%. Ask your lender for their specific buydown schedule.
5
Select the loan term
Choose the term of your mortgage. Longer terms mean more total interest savings from points, but also longer break-even timelines.
6
Review break-even and savings
The calculator shows the upfront points cost, your reduced rate, monthly savings, break-even month, and total interest saved over the full loan term.

Formula

Points Cost = pointsCount ÷ 100 × loanAmount

Rate with Points = baseRate − (pointsCount × rateReductionPerPoint)

Monthly Payment = P[r(1+r)^n] / [(1+r)^n − 1]
  (calculated for both base rate and discounted rate)

Monthly Savings = monthlyPaymentNoPoints − monthlyPaymentWithPoints

Break-Even Months = Points Cost ÷ Monthly Savings

Total Interest Saved = (monthlyNoPoints − monthlyWithPoints) × termMonths

Each point purchased reduces your interest rate by the lender-specified amount. The break-even month is found by dividing the upfront cost by the monthly savings — buying points is beneficial only if you stay in the home past this point. Example: on a $350,000 loan at 7.25%, buying 1 point ($3,500) for a 0.25% rate reduction to 7.00% lowers your monthly payment by ~$58. Break-even = $3,500 / $58 ≈ 61 months (5.1 years). Total interest saved over 30 years ≈ $20,700 — far exceeding the $3,500 cost.

Worked Example

Loan Amount: $350,000 Base Rate: 7.25% Points Purchased: 1 point Rate Reduction per Point: 0.25% Points Cost: 1% × $350,000 = $3,500 New Rate: 7.25% − 0.25% = 7.00% Monthly payment at 7.25% (30 yr): ~$2,388 Monthly payment at 7.00% (30 yr): ~$2,329 Monthly Savings: ~$58/month Break-Even: $3,500 ÷ $58 ≈ 61 months (5.1 years) If you stay in the home beyond 5.1 years, buying the point saves money. Over 30 years, total interest saved ≈ $58 × 360 = $20,880 minus the $3,500 cost = net savings of ~$17,380.

Frequently Asked Questions

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