Mortgage Points Calculator: Is Buying Down Your Rate Worth It?
One mortgage point costs 1% of the loan amount and typically reduces your interest rate by 0.25%. On a $400,000 loan, one point costs $4,000 and might drop your rate from 7.00% to 6.75% — saving about $67/month. The question is whether you'll stay long enough to recoup that upfront cost. Use the Mortgage Points Analyzer in the calculator below (it's built in) to see the exact numbers.
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Points make sense when you plan to keep the loan longer than the break-even period. Divide the point cost by the monthly savings. If one point costs $3,200 and saves $55/month, break-even is 3,200 / 55 = 58 months (~5 years). If you stay longer than 5 years, the point paid off.
Are points tax deductible?
Yes — mortgage points paid on a home purchase are generally fully deductible in the year paid if you itemize deductions. Points paid on a refinance must be deducted over the life of the loan. Consult a tax advisor for your specific situation.
What's the difference between discount points and origination points?
Discount points directly reduce your interest rate — that's what this calculator focuses on. Origination points are lender fees that don't reduce your rate; they're just a cost of getting the loan. Always ask your lender to clarify which type of points you're paying.
How many points can I buy?
Most lenders allow you to buy between 0 and 4 discount points. The rate reduction per point can vary by lender, loan type, and market conditions — 0.25% per point is a common rule of thumb, but you might get 0.125% or 0.375% depending on the lender.
Should I use cash for points or put it toward a larger down payment?
Compare the scenarios carefully. A larger down payment reduces your loan balance permanently and may eliminate PMI. Points reduce your rate on the existing loan. If you're right at the 20% down threshold, the extra cash toward down payment to eliminate PMI is usually the better move.