Mortgage Discount Points Break-Even Calculator
Find out whether paying mortgage discount points for a lower interest rate makes sense. Compare monthly payment savings, upfront costs, mortgage balances, and the true savings if you move or refinance early.
Your mortgage points comparison
Quote A: No discount points
Quote B: Pay discount points
Two ways to measure break-even
Why two dates? The simple cash-flow date counts the smaller monthly payment. The interest/equity-adjusted date also accounts for the fact that the two mortgages have different remaining balances when you sell or refinance. That second measure better represents financing-cost savings at payoff. Neither method includes the investment return you could earn on the upfront cash.
Net savings over time
The chart compares payment savings after upfront costs with interest savings after upfront costs. The vertical marker shows when you expect to sell or refinance.
What if you move or refinance at a different time?
Positive net savings mean Quote B is cheaper in total financing costs after discount points and closing-cost differences. A shorter holding period can change the choice.
| Holding period | Net payment savings | Mortgage balance difference | Net financing savings | Lower financing cost |
|---|
Mortgage comparison checkpoints
View interest, principal and costs at selected anniversaries. Download the full amortization comparison, including each month, as CSV.
| Month | No-points balance | With-points balance | Interest saved to date | Net financing savings |
|---|
How this mortgage points break-even calculator works
Cost of points: Mortgage loan amount × discount points ÷ 100. The total incremental cash at closing equals this amount plus any other net cost difference between Quote B and Quote A. One point costs 1% of the loan amount, but it does not lower every mortgage rate by the same amount. Use written lender quotes.
Monthly principal-and-interest payment: P × r ÷ [1 − (1 + r)−n], where P is the equal loan principal, r is the monthly note interest rate, and n is the number of months. The calculator simulates both loans with monthly interest and scheduled payments, then reports the monthly payment difference.
Cash-flow break-even: Extra cash at closing ÷ monthly payment savings, rounded up to a whole month, when payment savings are positive. Interest/equity-adjusted break-even: the first month when cumulative interest saved on the lower-rate mortgage covers the incremental upfront cost and remains recovered through the full term.
Savings if you refinance or sell early: interest paid without points minus interest paid with points minus extra cash at closing. With the same starting balance, that is equivalent to comparing cumulative principal-and-interest payments plus the payoff balance at sale, and then subtracting the extra cash at closing.
Important modeling limits: Fixed-rate mortgages only, constant note rates, equal loan amounts and terms, no extra principal payments and points paid in cash. This tool excludes discount-point tax deductibility, escrow, mortgage insurance, prepayment penalties, opportunity cost of cash, future refinancing costs and lender-specific rounding. If the points quote uses a different loan amount, term or loan type, the inputs must be reconciled before comparison.
Frequently asked questions
How much does one mortgage discount point cost?
One point costs 1% of the mortgage loan amount. On a $350,000 mortgage, one point costs $3,500, and 1.5 points cost $5,250. Points are typically paid at closing in exchange for a lower note interest rate.
Does one point always reduce the rate by 0.25%?
No. The actual rate reduction depends on the lender, loan product and market conditions. Get both a no-points quote and a quote with points for the same loan, and enter the offered rates rather than assuming a standard reduction.
Why are there cash-flow and equity-adjusted break-even dates?
Lower monthly payments are not identical to interest savings. If you sell or refinance, you must also pay off the remaining mortgage balance, which differs between quotes. The equity-adjusted calculation incorporates that balance difference through cumulative interest savings.
Are mortgage points worth it if I plan to sell soon?
Often they are less attractive when you expect to keep the loan only briefly because the upfront cost has fewer months to be recovered. Enter your expected holding period and compare the net financing savings at that horizon.
Are mortgage discount points tax deductible?
Potentially, under IRS rules that depend on your mortgage, points, use of loan proceeds, and itemization. This calculator excludes any tax deduction benefit. Review IRS Publication 936 or ask a qualified tax adviser.
Why is APR different from the mortgage interest rate?
The note interest rate drives your monthly principal-and-interest payment; APR includes certain additional borrowing costs, which can include points. Enter the note rates from Loan Estimates rather than fee-inclusive APR figures.
Can I include lender credits or different closing costs?
Yes. Enter the difference in all non-point costs between the points quote and the no-points quote. A negative amount reflects lower non-point costs or additional lender credits on the points quote. Do not count the same points twice.
Official references: CFPB: points and lender credits; CFPB: interest rate versus APR; IRS Publication 936: Home Mortgage Interest Deduction. Disclaimer: Educational estimates only, not lender disclosures, tax advice or personalized financial recommendations. Verify rates, fees, escrow and points with the Loan Estimate and Closing Disclosure.
