Discount Points Calculator
Calculate whether buying discount points makes financial sense for your mortgage
Your Discount Points Analysis
Here's whether buying points makes financial sense for your situation
Cost of Points
Monthly Payment Savings
Break-Even Period
Total Savings Over Loan Term
Payment Breakdown
Recommendation
Based on your inputs, we recommend...
Understanding Discount Points
Discount points are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called "buying down the rate." Each point you buy costs 1% of your loan amount and typically lowers your interest rate by 0.25%.
How Discount Points Work
When you purchase discount points, you're essentially prepaying interest to secure a lower rate for the life of your loan. This can save you money over time if you plan to stay in your home long enough to recoup the upfront cost through lower monthly payments.
When Do Points Make Sense?
Buying points generally makes financial sense if:
- You have extra cash available at closing
- You plan to stay in the home beyond the break-even point
- You want to minimize your long-term interest costs
- You're in a high tax bracket and can deduct the points
Calculating Your Break-Even Point
The break-even point is when your cumulative monthly savings equal the upfront cost of the points. Our calculator helps you determine this crucial metric to make an informed decision.
Frequently Asked Questions
Mortgage discount points are a form of prepaid interest that homebuyers can purchase to lower their mortgage interest rate. Each point typically costs 1% of the loan amount and reduces the interest rate by about 0.25%, though the exact reduction varies by lender.
In many cases, yes. Points paid on a mortgage to purchase, build, or improve your primary residence are generally tax-deductible in the year you pay them. Points on refinanced mortgages must be deducted over the life of the loan. Always consult with a tax professional for advice specific to your situation.
The decision depends on several factors: how long you plan to stay in the home, your available cash for closing, and your tolerance for upfront costs versus long-term savings. Use our calculator to determine your break-even point - if you plan to stay in the home longer than this period, buying points likely makes financial sense.
Yes, most lenders allow you to purchase fractional points (e.g., 0.5 points, 1.25 points, etc.). The cost and interest rate reduction will be proportional to the number of points purchased.
Yes, purchasing points increases your upfront closing costs because you're paying additional money to the lender at closing. However, this upfront cost may be offset by long-term savings on interest payments.