Mortgage Points Calculator

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Our mortgage points calculator determines the break-even point, cost of purchasing the points, and the total savings if the borrower purchases mortgage points. Mortgage discount points can be a useful method in reducing your mortgage rate which in turn reduced your monthly mortgage payment. The following information is required from you: mortgage loan amount, loan term, current mortgage rate, and the number of points you are intending to buy.

Inputs
$
%
Results
Interest saved
$11,432
over 30 years
with new mortgage rate
2.75
%
Break-Even Period
4
years
2
months
Cost of Points
$
3,000

What are mortgage points?

Mortgage points are optional purchases that can help reduce your mortgage rate. They are fees paid to the lender at closing in order to get a smaller monthly mortgage payment. It is a trade-off between paying funds upfront versus paying interest in the future. This type of mortgage point is a mortgage ‘discount point’ and it is known as ‘buying down the rate’.

The second type of mortgage point is the mortgage origination points. Mortgage origination points are fees paid to the lender for the services they provide in processing your mortgage. This can include all the paperwork, credit work, and quality service.

How much is a mortgage point?

One mortgage discount point is 1% of the mortgage loan amount and reduces the current mortgage rate by 0.25%. For example, if you have a mortgage amount of $250,000 and a mortgage rate of 3.5%, then one point will cost you $2,500 and reduce your mortgage rate to 3.25%.

Mortgage origination points also cost approximately 1% of the loan amount. This fee can be negotiated with the lender if you have a good income and credit score. You can also shop for multiple lenders and try to get the best deal.

How do mortgage points work?

Purchasing mortgage points can reduce your mortgage rate which in turn will reduce your monthly mortgage payment. A lower mortgage payment means a smaller amount of interest being paid resulting in the savings from purchasing the points. For example, on a $400,000 home with a 30-year fixed-rate mortgage:

No Points1 Point2 Points
Loan Amount$400,000$400,000$400,000
Mortgage Rate4%3.75%3.5%
Points Cost-$4,000$8,000
Monthly Payment$1,910$1,850$1,460
Monthly Payment$1,910$1,850$1,460
Total Interest$287,480$266,885$246,625
Lifetime Savings-$20,595$40,855

As shown in the example above, if you buy 1 mortgage discount point for $4,000, over the 30-year mortgage you will save $20,595 because of the lower monthly payment of $1,850. If you choose to buy 2 mortgage points you spend more upfront, $8,000, however, over the mortgage you can save $40,855!

Are mortgage points worth it and should I buy them?

The debate whether mortgage points being worth it comes down to the individual borrower and their needs. Whether you should purchase mortgage points depends on two major factors:

  1. Affordability: If you cannot afford mortgage points after paying for the down payment and closing costs then you should not purchase mortgage points. However, if you have met your down payment needs and have funds left over, you can consider getting mortgage discount points.
  2. Break-Even Point: The break-even point is the period when the savings from the mortgage points cover the costs of the points. For example, if the mortgage points fee is $3,000 and the monthly payment is reduced by $50, it will take 60 months ($3,000/50) or 2.5 years to break-even. If you do not sell or refinance your home within 2.5 years, mortgage points will save you money.
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