What This Calculator Does
Mortgage discount points are an upfront fee you pay at closing to reduce your interest rate for the life of the loan. One point costs 1% of your loan amount. The question every borrower faces is whether paying that upfront cost is worth the monthly savings. This calculator answers that by computing your break-even period: the number of months it takes for the accumulated monthly savings to exceed the cost of the points.
The rule of thumb is that one point reduces your rate by about 0.25 percentage points. In practice, the reduction varies by lender, loan type, credit profile, and market conditions. Some lenders offer 0.125% per point, others go as high as 0.375%. The calculator lets you adjust the rate reduction per point to match your lender's actual quote. For a broader mortgage payment picture, pair this with our Mortgage Calculator or our APR Calculator.
Current Rate Environment (September 2026)
As of September 3, 2026, the 30-year fixed mortgage rate averaged 6.71% per Freddie Mac's Primary Mortgage Market Survey, up from 6.66% the prior week. A year ago, the rate was 6.50%. At this rate level, buying one point on a $400,000 loan costs $4,000 and saves about $66 per month (assuming a 0.25% reduction to 6.46%). The break-even is roughly 61 months, or just over 5 years. Whether that is a good deal depends entirely on how long you keep the loan.
Inputs Required
- Loan Amount: The principal you are borrowing. Points are calculated as a percentage of this amount, not the home price.
- Base Interest Rate: The rate your lender quotes with zero points. As of September 2026, this is around 6.71% for a 30-year fixed.
- Points Purchased: The number of discount points you are considering. One point equals 1% of the loan amount.
- Rate Reduction Per Point: How much each point lowers your rate. The default is 0.25%, but check your lender's rate sheet for the exact figure.
- Loan Term: 15, 20, or 30 years. Longer terms produce more total savings from a rate reduction.
- How Long You Plan to Stay: The most important input. If you sell or refinance before the break-even period, points lose money.
Outputs Provided
- Cost of Points: The upfront dollar amount you pay at closing.
- New Interest Rate: Your reduced rate after buying points.
- Monthly Savings: The difference between your payment with and without points.
- Break-Even Period: How many months until the cumulative savings exceed the points cost.
- Lifetime Savings: Total interest saved over the full loan term, minus the cost of points.
- Net Savings Over Your Hold Period: Whether you come out ahead or behind based on how long you actually stay.
How the Calculation Works
The math has four steps:
Cost of Points = Loan Amount x Points x 1%
New Rate = Base Rate - (Points x Rate Reduction Per Point)
Monthly Savings = P&I(Base Rate) - P&I(New Rate)
Break-Even (months) = Cost of Points / Monthly Savings
The monthly principal and interest payment uses the standard fixed-rate amortization formula: M = P x [r(1+r)^n] / [(1+r)^n - 1], where P is the loan amount, r is the monthly interest rate, and n is the number of payments. The break-even is simply the upfront cost divided by the monthly savings. If you pay $4,000 for points and save $66 per month, the break-even is $4,000 / $66 = 60.6 months, or about 5 years and 1 month.
The lifetime savings calculation compares total interest paid over the full loan term with and without points, then subtracts the cost of the points themselves. On a $400,000 loan at 6.71% for 30 years, total interest is about $517,000. Buying one point to reduce the rate to 6.46% drops total interest to about $494,000. The interest savings of $23,000 minus the $4,000 points cost equals $19,000 in lifetime savings. But you only realize those savings if you keep the loan for all 30 years.
How to Use the Calculator
- Enter your loan amount. This is the amount you are borrowing, not the home price.
- Set the base interest rate your lender quoted with zero points.
- Adjust the number of points you are considering. Try 0.5, 1, 1.5, and 2 to compare.
- Set the rate reduction per point based on your lender's rate sheet. The default 0.25% is the industry average, but verify with your lender.
- Choose your loan term.
- Set how long you realistically plan to stay in the home or keep this loan before refinancing.
- Review the break-even period and net savings. If your planned hold time exceeds the break-even, points are worth considering.
Example Calculations
Example 1: Long-Term Buyer, 1 Point
Michael buys a $500,000 home in Charlotte with 20% down, financing $400,000 at a 6.71% base rate on a 30-year fixed. His lender offers 1 point for a 0.25% reduction:
- Cost of 1 point: $4,000
- New rate: 6.46%
- Monthly P&I without points: $2,573
- Monthly P&I with points: $2,519
- Monthly savings: $54
- Break-even: $4,000 / $54 = 74 months (6 years 2 months)
- Lifetime interest savings: $19,000 (over 30 years)
Michael plans to stay in the home for at least 15 years. Since 15 years exceeds the 6-year break-even, buying the point makes sense. He saves $54 per month for the remaining 9 years after break-even, netting about $9,700 in savings over his expected hold period. He also checks the APR using our APR Calculator to compare the true cost including the points.
Example 2: Short-Term Buyer, 2 Points
Sarah buys a $600,000 home in Seattle with 20% down, financing $480,000 at 6.71% on a 30-year fixed. Her lender offers 2 points for a 0.50% total reduction (0.25% per point). She expects to relocate in 4 years:
- Cost of 2 points: $9,600
- New rate: 6.21%
- Monthly P&I without points: $3,088
- Monthly P&I with points: $2,953
- Monthly savings: $135
- Break-even: $9,600 / $135 = 71 months (5 years 11 months)
- Net savings over 4 years: $135 x 48 - $9,600 = -$3,120 (a loss)
Sarah's break-even is nearly 6 years, but she plans to sell in 4. She would lose $3,120 by buying points. The calculator clearly shows this is a bad decision for her situation. She should take the no-points option and keep the $9,600 in savings or invest it elsewhere.
Real-World Scenarios
Refinancing Before Break-Even
James buys 1.5 points on a $350,000 loan at 6.71%, paying $5,250 to reduce his rate to 6.335%. His break-even is 68 months. However, 3 years later, mortgage rates drop to 5.5% and he refinances. He only saved $47/month for 36 months ($1,692 total) against his $5,250 points cost, losing $3,558. The refinance wipes out the benefit of the points because the lower rate only applied to the original loan. This is the most common way borrowers lose money on points. If you think rates might fall and you would refinance, do not buy points. Use our Refinance Calculator to model refinance scenarios.
Seller-Paid Points on New Construction
Linda buys a new construction home where the builder offers a $10,000 incentive that can be applied to closing costs or points. She applies it to 2 points on her $400,000 loan, reducing her rate from 6.71% to 6.21%. Since the builder paid the points, her break-even is effectively immediate. She saves $135/month from day one with no out-of-pocket cost. This is one of the few scenarios where points are always worth it: when someone else pays for them. If the builder had offered the same $10,000 as a price reduction instead, Linda would need to compare the lower loan amount against the lower rate to see which saves more over her hold period.
Points on a 15-Year Loan
Robert finances $300,000 on a 15-year fixed at 6.04% (the Freddie Mac average as of September 3, 2026). He considers buying 1 point for a 0.25% reduction to 5.79%. The cost is $3,000. His monthly P&I drops from $2,535 to $2,495, saving $40/month. Break-even is 75 months (6 years 3 months). On a 15-year loan, the break-even is longer because the monthly savings are smaller relative to the cost (the shorter term means less interest to save on). However, Robert plans to stay 15 years, so he nets about $4,200 in savings over the life of the loan. The shorter term makes points less attractive per month but still profitable if held to term.
Why This Calculation Matters
Points are one of the few negotiable upfront costs in a mortgage. The decision to buy them is a pure math problem with one critical unknown variable: how long you will keep the loan. According to data from the National Association of Realtors, the median homeowner tenure in the United States is approximately 13 years as of 2025, up from about 8 years a decade ago. If you are a typical homeowner who stays 13 years, points with a 5 to 7 year break-even are a good investment. If you are a mobile professional who moves every 3 to 5 years, they are not.
The 2026 conforming loan limit is $832,750, so one point on a maximum conforming loan costs $8,328. That is real money. On a $400,000 loan at 6.71%, one point costs $4,000 and saves about $54 per month. Over 30 years, that is $19,000 in net savings. But only if you never refinance and never sell before 30 years. The calculator shows you exactly where the tipping point is so you can make an informed decision based on your own plans, not a lender's sales pitch.
Common Mistakes to Avoid
- Buying points when you plan to move soon: If your break-even is 5 years and you sell in 3, you lose money. Be honest about your timeline. Factor in career mobility, family plans, and the possibility of relocating.
- Ignoring the refinance risk: If rates drop and you refinance, your points benefit ends. The original lower rate only applies to the original loan. If you think rates might fall, skip the points and take the base rate.
- Assuming 0.25% per point: The 0.25% reduction is an average, not a guarantee. Some lenders offer 0.125%, others 0.375%. Always ask for the rate sheet showing the exact reduction at 0, 1, and 2 points. A smaller reduction pushes the break-even further out.
- Confusing discount points with origination points: Discount points buy down your rate. Origination points are a lender fee for processing the loan and do not reduce your rate. Make sure you know which type of points you are paying for.
- Forgetting tax implications: Discount points may be tax deductible in the year you buy them for a purchase mortgage, or amortized over the loan term for a refinance. This can improve the effective return on points. Consult a tax professional about your specific situation, and check IRS Publication 936.
Limitations of This Calculator
This calculator assumes a fixed-rate mortgage with constant payments. It does not model adjustable-rate mortgages, where the rate reduction from points may only apply during the initial fixed period. The rate reduction per point is assumed to be linear (2 points = 2x the reduction of 1 point), but some lenders offer diminishing returns at higher point counts. The break-even calculation does not account for the time value of money (the opportunity cost of investing the points cost elsewhere). Tax deductions are not factored in. This tool provides an estimate to help you compare options, not a guarantee of savings. Ask your lender for a Loan Estimate showing the rate and costs at 0, 1, and 2 points to get exact numbers for your situation.
Authoritative Research & Resources
- Consumer Financial Protection Bureau: Discount Points and Lender Credits - The CFPB's official explanation of how discount points work, how they differ from lender credits, and what to look for on your Loan Estimate. Required reading before deciding whether to buy points.
- Freddie Mac Primary Mortgage Market Survey - The source for current mortgage rate data used as the default base rate in this calculator. As of September 3, 2026, the 30-year fixed averaged 6.71% and the 15-year fixed averaged 6.04%. Check this survey for the latest rates before entering your base rate.
- IRS Publication 936: Home Mortgage Interest Deduction - Official IRS guidance on the deductibility of mortgage interest and points. Points paid on a purchase mortgage may be deductible in the year paid, while points on a refinance are generally amortized over the life of the loan. Consult a tax professional for your specific situation.
- National Association of Realtors: Housing Statistics - Data on median homeowner tenure (approximately 13 years as of 2025), which helps you estimate whether your planned hold period is typical. Longer tenure makes points more attractive.