Mortgage Points Calculator
Buying Down a Rate Is a Bet on How Long You'll Keep the Loan
Mortgage points let a borrower prepay interest upfront in exchange for a lower rate for the life of the loan — a trade that only pays off if the loan is kept long enough for the monthly savings to recover the upfront cost. Sell the home or refinance before that break-even point and the points were a net loss, no matter how attractive the lower rate looked on paper.
The Formula
New Rate = Base Rate − (Points × Rate Reduction per Point)
Break-Even (months) = Cost of Points / Monthly Payment Savings
Where This Calculation Matters
- Deciding whether to pay for points at closing — if you plan to move or refinance before the break-even month, paying for points is money that won't be recovered.
- Comparing lender offers — two lenders quoting the same rate might differ in how many points that rate costs, which changes the real cost of the loan.
- Negotiating seller-paid points — if a seller is willing to cover closing costs, points bought with their money have no break-even risk for the buyer at all.
- Long-hold vs. short-hold borrowers — someone confident they'll stay in a home 10+ years has a very different points calculus than someone expecting to relocate in three.
Break-Even Period at Different Point Purchases
On a $300,000 loan at a 7% base rate over 30 years, with each point reducing the rate by 0.25%:
| Points | Cost | New rate | Monthly savings | Break-even |
|---|---|---|---|---|
| 1 | $3,000.00 | 6.750% | $50.11 | 59.9 months |
| 2 | $6,000.00 | 6.500% | $99.70 | 60.2 months |
| 3 | $9,000.00 | 6.250% | $148.76 | 60.5 months |
In this example the break-even point lands close to 5 years regardless of how many points are purchased — a pattern that holds roughly true whenever the rate reduction per point stays constant, though it isn't a universal rule for every rate environment.
How to Use This Calculator
- Enter the Loan Amount and Base Interest Rate quoted without points.
- Enter Points Purchased and, if your lender quotes a different figure than the 0.25% default, the Rate Reduction per Point.
- Enter the Loan Term (years).
- Select Calculate to see the cost of the points, the new rate, and the break-even period in months.
Related Calculations
Compare the reduced-rate payment against a strategy of paying extra principal instead with the Extra Mortgage Payment Calculator, or check the LTV impact of your loan amount with the Loan-to-Value (LTV) Calculator.