Mortgage Points vs Rate Break-Even

Mortgage points are upfront fees paid at closing to reduce your interest rate. One point typically costs 1% of the loan and may lower the quoted APR by about a quarter of a percentage point, though the exact discount shifts with market conditions and the lender’s pricing grid. Buying points is a trade: you spend cash today to shrink your monthly payment for many months. If the payment reduction is large enough and you keep the loan long enough, that upfront cost can pay for itself and then generate real savings.

Start with three grounding questions. First: how certain are you about your horizon? If you might move, refinance, or pay down aggressively within a few years, you may never cross your break-even month. Second: how tight is your current budget? Lowering the payment via points can create month-to-month breathing room even if lifetime savings are modest. Third: what else could you do with the cash? If points would deplete reserves or crowd out higher-return priorities (paying down costly debt, finishing an emergency fund), the safer choice can be to keep the base rate.

Use the calculator in three passes. First, plug in the loan amount, APRs with and without points, the term, and your realistic keep period. The headline shows monthly savings and an estimated break-even month. Second, read the cumulative savings chart. The line starts below zero (because you’ve paid points) and climbs by your monthly savings each month. When it crosses zero, you’ve recouped the upfront cost; additional months add true savings. Third, consider net savings over your keep period. This is the most honest figure for real life since many borrowers don’t hold a mortgage for the full 30 years.

Context matters. Lender rate sheets can change daily, and the “price” of a 0.125% or 0.25% rate drop isn’t linear. Some days, a half point of APR might cost less than the simple sum of two quarter-point buydowns. Closing disclosures also separate discount points from other fees; only the former buy the rate. Finally, tax treatment varies by jurisdiction and borrower situation. Some homeowners can deduct points in the year paid; others must amortize them. Always verify with a tax professional before assuming any benefit.

The payment formula is standard amortization. With principal P, periodic rate r, and payments n, the payment is PMT = P·r / (1 − (1 + r)⁻ⁿ). We compute two payments—one using your base APR and one using your buy-down APR—holding the same loan amount and term so the comparison is apples-to-apples. Upfront points are P × points%. Monthly savings = PMT_base − PMT_buy. Break-even month is roughly the points cost divided by monthly savings, rounded up and capped at the total number of payments. If monthly savings are zero or negative (buy-down rate isn’t lower), there is no break-even.

The chart displays cumulative net savings month by month: start at −points cost and add monthly savings each period. We intentionally ignore escrow items, prepaid interest timing, and taxes; those are either pass-throughs (escrow) or situational (tax). This keeps the analysis focused on the exchange you’re actually deciding: an upfront discount for a lower lifelong rate. If you plan extra principal payments, the headline savings won’t change, but your keep period may shrink; update that field to see how your net result changes.