Mortgage Points Calculator
Frequently Asked Questions
What does 1 mortgage point cost and how much does it lower my rate?
One mortgage discount point equals 1% of your loan amount and typically reduces your interest rate by 0.25%. On a $400,000 mortgage, 1 point costs $4,000 and might lower your rate from 7.50% to 7.25%, saving roughly $77 per month. The actual rate reduction varies by lender and market conditions.
How do I calculate my break-even point on mortgage discount points?
Divide the total upfront cost of the points by your monthly payment savings. For example, if 1 point costs $4,500 and lowers your payment by $77 per month, your break-even is 58 months — about 5 years. If you plan to keep the mortgage longer than that, buying points saves you money.
Are mortgage discount points tax deductible?
Yes, discount points on a purchase mortgage are generally tax deductible in the year paid if you meet IRS requirements outlined in Publication 936. For a refinance, the deduction is spread over the loan term. Tax laws change, so consult a CPA or tax advisor to confirm your specific deductibility situation.
How many mortgage points should I buy?
Most financial advisors recommend buying points only when your break-even period is under 7 years and you are confident you will stay that long. Calculate 1 point and 2 points scenarios separately. Choose the option where the upfront cost fits your budget and break-even comfortably aligns with your planned stay duration.
Should I buy mortgage points or put more money down?
Buying points lowers your rate but does not reduce your loan balance or build equity. A larger down payment reduces your principal, lowers your monthly payment, and may eliminate PMI. If you are close to the 20% threshold needed to avoid PMI, prioritizing the larger down payment over buying points is usually the better financial decision.
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