Are mortgage points worth it?
They're worth it when you keep the loan long enough, and the time you keep it usually decides the answer. In our example, the same point loses $1,995 if you leave after two years and gains $10,847 after fifteen.
| Keep the loan | Net result |
|---|---|
| 2 yrs | -$1,995 |
| 3 yrs | -$989 |
| 5 yrs | $1,026 |
| 7 yrs | $3,039 |
| 10 yrs | $6,034 |
| 15 yrs | $10,847 |
| 30 yrs | $19,803 |
The hard part is honest timing. You don't only leave a loan by moving. A refinance ends it too, and any points you paid don't come back. If rates could fall enough for you to refinance in a few years, count that as your time horizon.
How do you calculate the break-even on mortgage points?
The common shortcut divides the cost by the monthly savings. Here that's $4,000 ÷ $66.12, which gives 61 months. It's a useful quick check, but it's too cautious, because it ignores your loan balance.
Shortcut break-even = cost of points ÷ monthly savingsNet at any month = payments saved + how much less you owe − cost of pointsA lower rate sends more of each payment to principal. If you sell or refinance, you owe less, and you keep that difference. Count it, and this example's real break-even comes at month 48, not 61. That's the month the interest you've saved passes the cost of the point. This calculator shows both figures.
How much does one point lower your rate?
One point costs 1% of the loan, but there's no set rate cut. The Consumer Financial Protection Bureau (CFPB) says it depends on the lender, the kind of loan, and the market. So the size of the cut is the number to check on each quote. On $400,000, the same $4,000 looks very different at each of these.
| Rate cut | New rate | Saved a month | Shortcut | Real break-even | Net at 5 years | Net at 10 years |
|---|---|---|---|---|---|---|
| 0.125% | 6.625% | $33.15 | 121 months | 96 months | -$1,486 | $1,021 |
| 0.25% | 6.5% | $66.12 | 61 months | 48 months | $1,026 | $6,034 |
| 0.375% | 6.375% | $98.91 | 41 months | 32 months | $3,537 | $11,039 |
| 0.5% | 6.25% | $131.52 | 31 months | 24 months | $6,045 | $16,036 |
To compare real offers, enter each one as a row with its points and rate. The first row is the baseline that every other row is measured against. Get your quotes on the same day, because rates change. Your Loan Estimate shows points in Section A as both a percentage and a dollar amount.
Does loan size or term change the break-even?
Loan size barely matters. A point costs a share of the loan, and the monthly savings also scale with the loan, so a bigger loan pays back at about the same month. It only makes the dollars larger. The term moves the shortcut more than the real answer. On a 15-year loan, the same rate cut saves $55.21 a month instead of $66.12, so the shortcut goes from 61 months to 73. The real break-even only moves from month 48 to month 51, because a 15-year loan's balance falls faster at the lower rate.
| Loan | Term | Cost | Saved a month | Shortcut | Real break-even | Net at 7 years |
|---|---|---|---|---|---|---|
| $200,000 | 30 years | $2,000 | $33.06 | 61 months | 48 months | $1,520 |
| $400,000 | 30 years | $4,000 | $66.12 | 61 months | 48 months | $3,039 |
| $800,000 | 30 years | $8,000 | $132.24 | 61 months | 48 months | $6,078 |
| $400,000 | 15 years | $4,000 | $55.21 | 73 months | 51 months | $2,346 |
When a lender credit beats paying points
A lender credit is points in reverse. You get money toward closing costs for a higher rate. Enter it as negative points. In this example, a $4,000 credit at 7% costs $66.82 more a month, yet stays ahead of the no-points loan for 3 yrs 11 mos.
| Keep the loan | 1 point, 6.5% | 2 points, 6.25% | Credit of 1 point, 7% |
|---|---|---|---|
| 3 yrs | -$989 | -$1,980 | $987 |
| 5 yrs | $1,026 | $2,045 | -$1,033 |
| 7 yrs | $3,039 | $6,063 | -$3,052 |
| 10 yrs | $6,034 | $12,036 | -$6,064 |
| 15 yrs | $10,847 | $21,615 | -$10,921 |
| 30 yrs | $19,803 | $39,351 | -$20,053 |
So if you expect to move or refinance soon, the credit can be the better deal. It can also help if cash at closing is what's holding you back. Over the full 30 years, the same credit ends up $20,053 behind. The closing cost calculator shows what either choice does to your cash to close.
What about opportunity cost and taxes?
Money spent on points can't earn anything else. Enter a return in the advanced options to count that. If the $4,000 could earn 5% a year, and you also invested the monthly savings, the seven-year result falls from $3,039 to $2,446. The 5% is an assumption, not a promise. If you carry high-rate debt or a thin emergency fund, weigh those first.
On taxes, the IRS says points are generally deducted over the life of the loan. You may be able to deduct them in the year you pay if you meet its conditions: for example, the loan buys, builds, or improves your main home and secures it, paying points is an established practice in your area, and you itemize. Refinance points follow the general rule. Topic 504 lists the full conditions. This calculator leaves taxes out, and the deduction only helps if you itemize. A tax professional can check your case.
Common questions
What is one mortgage point?
One percent of the loan amount. The CFPB's example is $1,000 on a $100,000 loan. On $400,000, it's $4,000. Lenders may also quote fractions of a point, such as half a point.
Are discount points the same as origination points?
Not always, so read the label. Discount points buy a lower rate. An origination charge is what a lender charges for the loan and may be shown as a percentage. Ask which you're paying for, since only discount points should buy a lower rate.
Do points change the APR?
Yes. The APR counts them as a cost, so one point at 6.5% here shows as about 6.6%. Our figure counts points only. Your Loan Estimate's APR includes other fees. The APR calculator compares full offers.
Should I buy points on a refinance?
The math works the same way. A loan you refinance once you could refinance again, so use a realistic time, and test the whole deal in the refinance calculator.
Does paying extra change the break-even?
Yes. Paying down faster shortens the time your lower rate has to work, so the savings shrink. This tool assumes regular payments only. To see the schedule for a rate, use the amortization calculator.
Sources
- What are discount points and lender credits and how do they work? · Consumer Financial Protection Bureau
- Loan Estimate explainer · Consumer Financial Protection Bureau
- Topic no. 504, Home mortgage points · Internal Revenue Service
- Publication 936, Home Mortgage Interest Deduction · Internal Revenue Service