Mortgage Points Break-Even
Should you pay points to drop your rate?
Loan + offer
TERM
$
%
%
of loan
Pay the points
+$1,494
Net savings if you hold the loan 7 years. Break-even is at 5yr 2mo (5.2 years), and you'd hold 1.8 years past that.
Points cost
$4,000
1 pt at 1.00% of $400,000
Monthly savings
$65
6.500% → 6.250%
Break-even
5yr 2mo
when monthly savings = points cost
Net at year 7
$1,494
past break-even
Lifetime if held to payoff
$19,545
over 30 years
Cumulative net savings by year
| Year | Cumulative monthly savings | Net (after points cost) |
|---|---|---|
| 1 | $785 | $-3,215 |
| 2 | $1,570 | $-2,430 |
| 3 | $2,355 | $-1,645 |
| 4 | $3,139 | $-861 |
| 5 | $3,924 | $-76 |
| 6break-even | $4,709 | $709 |
| 7 | $5,494 | $1,494 |
| 8 | $6,279 | $2,279 |
| 9 | $7,064 | $3,064 |
| 10 | $7,848 | $3,848 |
| 11 | $8,633 | $4,633 |
| 12 | $9,418 | $5,418 |
| 13 | $10,203 | $6,203 |
| 14 | $10,988 | $6,988 |
| 15 | $11,773 | $7,773 |
| 16 | $12,557 | $8,557 |
| 17 | $13,342 | $9,342 |
| 18 | $14,127 | $10,127 |
| 19 | $14,912 | $10,912 |
| 20 | $15,697 | $11,697 |
| 21 | $16,482 | $12,482 |
| 22 | $17,266 | $13,266 |
| 23 | $18,051 | $14,051 |
| 24 | $18,836 | $14,836 |
| 25 | $19,621 | $15,621 |
| 26 | $20,406 | $16,406 |
| 27 | $21,191 | $17,191 |
| 28 | $21,976 | $17,976 |
| 29 | $22,760 | $18,760 |
| 30 | $23,545 | $19,545 |
Tax wrinkle: on a purchase you can deduct points in year 1 (if itemizing). On a refinance, you must amortize them over the loan life — much smaller annual benefit. The break-even math here is pre-tax; the actual after-tax break-even is slightly faster for purchases, similar for refis.