What is a mortgage point?

One percent of the loan amount, paid at closing, in exchange for a lower interest rate for the life of the loan. On a $400,000 mortgage a point costs $4,000. It is prepaid interest rather than a fee — you are buying down the rate, which is why discount points are treated differently from origination points for tax purposes. Points can usually be bought in fractions, so half a point or one and a half is normally available.

How much does one point lower the rate?

Around a quarter of a percentage point is the usual quote, but treat that as a starting figure rather than a rule. The exchange rate moves with the market, differs between lenders on the same day, and is negotiable. It also is not linear — the first point often buys more than the third, because lenders price the buy-down in tiers. Ask for the actual rate at each point level rather than assuming a constant, and put those numbers in here.

Why is the usual break-even calculation wrong?

Because it only counts the payment. Cost divided by monthly saving assumes the two loans are otherwise identical, and they are not — the lower rate is also paying down principal faster, so you owe less at every point along the way. The right comparison is the total cash each route has consumed by a given month, including settling the outstanding balance, since that is what happens on a sale or refinance. Counting the balance moves the break-even earlier every time. On the example here it moves from 61.5 months to 48.

When are points worth buying?

When you are confident of keeping the loan past the break-even, and reasonably confident rates will not fall far enough to make refinancing attractive. The first is arithmetic and this page answers it. The second is a judgement: buying points at the top of a rate cycle is a poor bet, because the buy-down is wasted if you refinance out of the loan in two years. Points suit a long, settled hold at a rate you would be content to keep.

Should I buy points or make a bigger down payment?

This is the comparison that actually matters, and most calculators skip it. Both use the same cash. Points reduce the rate on the full loan; a larger down payment reduces the loan itself at the original rate. Points usually win eventually, because a rate reduction compounds across the whole balance for the whole term — but they win later than the naive comparison suggests, because the alternative is not doing nothing. A bigger down payment also has a second benefit points do not: it may take you past a loan-to-value threshold and remove mortgage insurance entirely.

What are negative points or lender credits?

Points in reverse. You accept a higher rate and the lender pays you at closing, usually toward closing costs. It is the same trade read the other way: cash now against a higher payment later, with a crossing point where the extra interest catches the credit. It suits a buyer who is short of cash at closing, or who expects to move or refinance soon — and it is a poor deal for someone who will hold the loan for decades, for exactly the reasons points are a good one.

Are mortgage points tax deductible?

In the United States, discount points on a purchase of a main home are generally deductible in the year paid if a set of conditions is met, while points on a refinance normally have to be spread over the life of the loan. Origination points that are a charge for services rather than a rate buy-down are generally not deductible at all. The rules have conditions that matter, and the benefit only helps if you itemise rather than take the standard deduction — so treat this as a reason to ask a tax professional rather than as a figure to assume.

What is the difference between discount and origination points?

Discount points buy down your rate. Origination points are the lender charging you for making the loan, and they buy you nothing at all. Both are quoted as a percentage of the loan and both appear at closing, which is why they get confused — but only the first has anything to do with this calculator. Check which the loan estimate is describing before assuming a point is buying you something, and treat origination points as a cost to negotiate rather than an investment to evaluate.

Can I negotiate points?

Yes, and more readily than most borrowers assume. The rate-to-point exchange is set by the lender and varies between them on the same day for the same borrower, so quotes from two or three lenders are worth having. Ask specifically for the rate at zero points, half a point and one point rather than a single headline figure — a rate advertised without qualification frequently already assumes you are buying points, which makes it look better than a competitor quoting the true zero-point rate.

What happens to my points if I refinance?

They are gone. Points buy down the rate on that specific loan, so refinancing ends the benefit whether or not you have reached the break-even. That is the real risk, and it is why the horizon question is about the loan rather than the house — you can stay in the property for twenty years and still lose the value of the points by refinancing in year two. If rates are high and expected to fall, that risk is at its worst, which is precisely when the buy-down looks most tempting.

Mortgage Points Calculator

Mortgage points are prepaid interest. You hand the lender a percentage of the loan at closing and they hand you back a lower rate for the life of it — one point costs 1% of the loan and typically buys about a quarter of a percentage point, though the exchange rate varies by lender and by day. The o...

THE LOAN

LOAN AMOUNT ($)

TERM (YEARS)

RATE WITHOUT POINTS (%)

POINTS — NEGATIVE FOR A CREDIT

RATE CUT PER POINT (%)

YEARS YOU EXPECT TO KEEP IT

A quarter point per point is the usual quote, but it varies by lender and by day — take the real numbers off your loan estimate rather than the default. Negative points are lender credits: you accept a higher rate and the lender pays toward your closing costs.

THESE POINTS BREAK EVEN AFTER

4 years

You expect to keep the loan 7 years, which clears it by 3 years. At that point you are $6,033 ahead.

COST

$8,000

RATE

6.000%

SAVES / MO

$130.07

The break-even you will see elsewhere is 5y 2m. That is the cost divided by the monthly saving, and it leaves out the fact that a lower rate also pays the balance down faster — so you owe less at every point along the way. Counting that, the real figure is 4 years, which is 1y 2m sooner. The usual calculation understates the case for points.

The honest comparison is not against doing nothing. If you did not buy points you would probably put that $8,000 toward the down payment instead, borrowing $392,000 at 6.500% for a payment of $2,477.71. Against that, the points pull ahead at 5y 4m rather than 4 years — a harder test, and the one that matters if the cash was going into the house either way.

Cost of points

$8,000

Rate with points

6.000%

Payment without

$2,528.27

Payment with

$2,398.20

Monthly saving

$130.07

Break-even, common method

5y 2m

Break-even, counting balance

4 years

Break-even vs extra principal

5y 4m

At 7 years

$6,033 ahead

Over the full term

$38,825 saved

This is an estimate, not financial advice. It ignores what the cash could have earned elsewhere, any tax deduction for the points, and the strong chance that you refinance before the term ends — most mortgages are not held to maturity. Take the actual rate and point quotes from your loan estimate, and remember the exchange rate between them is negotiable.

THE CROSSING

The line is total cash out, including settling the balance. That is what makes it the right test — if you sell or refinance you pay off what is left, so the comparison has to include it. A lower rate has been eating into the principal faster the whole time, which is why the crossing comes sooner than the usual cost-divided-by-saving figure suggests.

Live calculation · updates as you type

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HOW TO USE

1
Enter the loan amount, term and the rate you are quoted without points. Take these from the loan estimate rather than an advert — the rate on a rate sheet usually already assumes some points.
2
Enter the points and what each one buys. A quarter percent per point is the common quote, but ask: the exchange rate is negotiable and differs between lenders on the same day.
3
Enter how long you realistically expect to keep the loan, not the term. Most mortgages are refinanced or paid off on sale long before thirty years, and that horizon decides the whole question.
4
Read the crossing point, then the comparison against putting the same cash into the down payment. If the money was going into the house either way, that is the test that matters.

HOW LONG YOU STAY DECIDES IT

If you leave at	Ahead or behind	Verdict
2 years	−$3,992	short of the break-even
4 years	+$24	past the break-even
5 years	+$2,031	past the break-even
7 years	+$6,033	past the break-even
10 years	+$11,970	past the break-even
15 years	+$21,454	past the break-even
30 years	+$38,825	past the break-even

The median American homeowner moves or refinances well before a thirty-year term is up, which is why the horizon question matters more than the total-interest figure. Points are a bet that you will stay; a lender credit is a bet that you will not.

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Last updated: July 30, 2026 · Formula verified · Eagle-eyed accuracy for every calculation.