Buying discount points means paying cash up front — 1 point is 1% of the loan — to lower your mortgage rate. Whether that trade pays depends on one number: the break-even month, when the monthly savings finally repay the upfront cost. This calculator compares 0, 1, 2 and 3 points side by side and tells you, for how long you actually plan to stay, which option comes out ahead. Everything runs in your browser.
| Points | Rate | Monthly P&I | Upfront cost | Saving / mo | Break-even | Total interest |
|---|---|---|---|---|---|---|
| — | ||||||
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How it works: each option’s rate = base rate − points × reduction per point; its cost = points × 1% of the loan. Monthly P&I uses PMT = P × r ÷ (1 − (1 + r)−n) with r = rate ÷ 12 and n = term months. Monthly saving is measured against the 0-points payment, and break-even months = ceil(points cost ÷ monthly saving) — the first month by which the savings have repaid the upfront cost. Total interest is over the full term at that option’s rate.
What 0, 1, 2 or 3 points do to your rate, payment and total interest — and the month each option breaks even.
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Compare buying 0, 1, 2 or 3 discount points on a mortgage side by side: the rate each option gives you, its monthly principal-and-interest payment, the upfront points cost at 1% of the loan per point, the monthly saving versus 0 points, the break-even month when the savings repay the cost, total interest over the full term, and a verdict driven by how long you plan to stay.
A $400,000 loan at 6.75% for 30 years costs $2,594.39 a month with 0 points and $533,981.26 of interest over the term. One point costs $4,000 (1% of the loan) and at a 0.25% reduction drops the rate to 6.50%: the payment falls to $2,528.27, a saving of $66.12 a month, so break-even is ceil($4,000 ÷ $66.12) = 61 months. Two points cost $8,000, give 6.25% and a $2,462.87 payment — saving $131.52 a month, break-even ceil($8,000 ÷ $131.52) = 61 months, and total interest of $486,632.77. Three points cost $12,000, give 6.00% and break even at month 62. Staying 7 years (84 months), all three options are past break-even, and 3 points is ahead by about $4,479.98 on payments alone.
Each option’s rate is the base rate minus points × the reduction per point, and each point costs 1% of the loan amount. Monthly principal and interest uses the standard formula PMT = P × r ÷ (1 − (1 + r)^−n), with r = the option’s rate ÷ 12 and n = the term in months. Monthly saving is the 0-points payment minus the option’s payment. Break-even months = ceil(points cost ÷ monthly saving) — the first month by which the accumulated monthly savings have repaid the upfront cost. Total interest is the option’s payment × n − the loan amount, over the full term. The stay verdict compares your stay in months with each break-even month and nets the savings over your stay against the upfront cost.
One discount point is a fee equal to 1% of the loan amount — $4,000 on a $400,000 loan — paid at closing in exchange for a lower interest rate, commonly about 0.25% per point. Points are prepaid interest: you pay more on day one to pay less every month after.
Divide the upfront points cost by the monthly saving and round up: ceil(cost ÷ saving). For 1 point on the worked example that is ceil($4,000 ÷ $66.12) = 61 months. Keep the loan longer than that and the points have paid for themselves; sell or refinance sooner and they have not.
Only if you stay past break-even. Over a full 30-year term the interest saving is large, but most loans end early through a sale or refinance. At a 7-year stay in the worked example all three options pay; at a 4-year stay none of them would, because 48 months is short of every break-even month shown.
No — it is the common rule of thumb, but the real reduction varies by lender, day and loan. Some quotes give closer to 0.125% per point, others more. That is why the reduction field is editable: type the reduction from your actual quote and the break-even months update with it.
Because break-even is not the whole story. Two points break even at the same 61 months in the example but save twice as much per month afterwards — $131.52 against $66.12 — so the longer you stay past break-even, the more the bigger buy-down pulls ahead. The table’s total-interest column shows the full-term version of that trade.
No. Every calculation runs in your browser on the numbers you type; nothing is sent to or stored on the server.
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