Mortgage Points Break-Even

Should you pay points to drop your rate?

Enter your loan amount, the rate with and without points, and how long you expect to keep the loan. We’ll show how long it takes the lower payment to repay what the points cost, and whether you’d come out ahead.

Points buy a lower rate
are a fee you pay the lender at closing in exchange for a lower interest rate. One point costs 1% of the loan: $4,000 on a $400,000 loan.
The lower rate saves you monthly
A lower rate means a smaller monthly payment for as long as you keep the loan.
Break-even decides it
The is when your monthly savings have repaid the upfront cost. Keep the loan longer and points pay off; sell or refinance sooner and you lose money on them.

Points appear on your Loan Estimate under origination charges, listed as a percentage of the loan amount. Ask the lender for the rate with zero points too, so you can compare.

The loan and the lender’s offer

LOAN LENGTH (YRS)

Loan amount

Rate with no points

Rate with points

Points you'd pay

% of loan

Your plans

The most important input here. Points only pay off if you keep this loan past break-even.

Years you'll keep the loan

Pay the points

+$3,024

Net savings if you keep the loan 7 years, counting the smaller balance you’d owe when it ends. Break-even is at 4yr (4.0 years), and you’d keep it 3.0 years past that.

Upfront cost of points

$4,000

1 point = 1.00% of $400,000

Monthly savings

$65

rate 6.5% → 6.25%

Break-even point

4yr

simple formula: 62 months

Net after 7 years

$3,024

past break-even

If kept to payoff

$19,545

net over all 30 years

What this means

You’d pay $4,000 at closing to lower your rate from 6.5% to 6.25%, which cuts your monthly loan payment by $65 ($2,528 to $2,463). The lower rate also pays your balance down a little faster, so if you sell or refinance you owe less. Counting both, you earn back the cost in 4yr. (The simple formula lenders quote, the points cost divided by the monthly savings, gives 62 months; it leaves out the lower balance.) Keeping the loan 7 years, you’d end up $3,024 ahead, including $1,531 less owed on the loan.

The main risk is ending the loan early: if rates fall and you refinance, or you move, before break-even, the points are lost. Cash spent on points also can’t go to your down payment or emergency fund. This math ignores taxes and what that cash could earn elsewhere.

Savings by year

Find the year you expect to sell or refinance: the last column is what the points would have gained or lost you by then, counting the payment savings and the smaller balance you’d owe.

Year	Total saved so far	Lower balance owed	Net after paying for points
1	$785	$216	-$2,999
2	$1,570	$435	-$1,996
3	$2,355	$654	-$991
4break-even	$3,139	$875	$14
5	$3,924	$1,095	$1,019
6	$4,709	$1,314	$2,023
7	$5,494	$1,531	$3,024
8	$6,279	$1,744	$4,022
9	$7,064	$1,952	$5,016
10	$7,848	$2,154	$6,002
11	$8,633	$2,347	$6,980
12	$9,418	$2,530	$7,948
13	$10,203	$2,701	$8,904
14	$10,988	$2,857	$9,845
15	$11,773	$2,996	$10,768
16	$12,557	$3,114	$11,671
17	$13,342	$3,208	$12,550
18	$14,127	$3,275	$13,402
19	$14,912	$3,311	$14,223
20	$15,697	$3,311	$15,007
21	$16,482	$3,270	$15,752
22	$17,266	$3,183	$16,450
23	$18,051	$3,045	$17,096
24	$18,836	$2,848	$17,684
25	$19,621	$2,586	$18,207
26	$20,406	$2,251	$18,657
27	$21,191	$1,835	$19,025
28	$21,976	$1,328	$19,303
29	$22,760	$720	$19,480
30	$23,545	$0	$19,545

On a purchase you can generally deduct points in year 1, if you . On a refinance, you must spread the deduction over the life of the loan, a much smaller yearly benefit (any undeducted balance is deductible when the loan ends early). The break-even math here is before taxes. For itemizers, after-tax break-even on a purchase is roughly the same as shown (the points and the interest they save are both deductible, so both shrink by your tax rate); on a refinance it tends to be slower, because the lower rate trims your interest deduction right away while the points deduction trickles in.

Results are estimates based on your inputs and the assumptions on this page, not quotes or advice. A lender, servicer, or tax advisor will give you different numbers. Disclaimer

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Terms used on this page

Short definitions of the terms this calculator uses.

Discount points: A fee you pay the lender at closing to get a lower interest rate. One point costs 1% of the loan amount, so 1 point on a $400,000 loan is $4,000. More
Par rate: The rate a lender offers with no points and no lender credits. It’s the starting point for comparing offers with points.
Break-even point: How long it takes for the lower rate to repay what the points cost. This tool counts the monthly savings plus the smaller balance you’d owe if you sold or refinanced. Keep the loan past this point and the points pay off.
Loan term: How many years the loan is scheduled to take. 30 years is the most common.
LTV (loan-to-value ratio): Your loan as a percentage of the home’s value. A $400,000 loan on a $500,000 home is 80% LTV. Lower LTV usually means better rates. More
Loan Estimate: The standard three-page form lenders must give you after you apply. It lists the rate, points, and closing costs, so you can compare offers. More
Refinance: Replacing your mortgage with a new loan, usually for a lower rate. Refinancing ends the old loan, so any points you paid on it stop earning back their cost.
Itemizing: Listing deductions like mortgage interest and points on your tax return instead of taking the standard deduction. Only itemizers get a tax benefit from points.

Keep learning

Next steps

Closing cost estimator: see points alongside your other closing costs
Mortgage calculator: the full monthly payment at either rate
Refinance calculator: break-even on a refinance
Credit score impact: a better score can lower the rate for free