Paid at closing
$4,000
Enter the loan, the points you would pay and the rate reduction you have actually been quoted. The calculator returns the month the fee is recovered — and, because lenders set that reduction themselves, what the same fee does at three other reductions.
Principal and interest on the loan only. Property tax, homeowners insurance, mortgage insurance and association dues are excluded, and so is any tax treatment of the points themselves. The rate reduction is a figure you supply from a quote; the same lender on the same day can price two different reductions for the same fee, which is the reason the table below exists.
| How long you hold it | Years | Payment savings accumulated | Net of the fee |
|---|---|---|---|
| 1-year hold | 1 | $815 | $-3,185 |
| 2-year hold | 2 | $1,629 | $-2,371 |
| 3-year hold | 3 | $2,444 | $-1,556 |
| 5-year hold | 5 | $4,074 | $74 |
| 7-year hold | 7 | $5,703 | $1,703 |
| 10-year hold | 10 | $8,147 | $4,147 |
| 15-year hold | 15 | $12,221 | $8,221 |
| 30-year hold | 30 | $24,441 | $20,441 |
| Reduction per point | Resulting rate | Monthly saving | Break-even |
|---|---|---|---|
| 0.125 pp per point | 7.28% | $34.03 | 118 months |
| 0.250 pp per point | 7.15% | $67.89 | 59 months |
| 0.375 pp per point | 7.03% | $101.59 | 40 months |
| 0.500 pp per point | 6.90% | $135.12 | 30 months |
A discount point is an upfront fee, expressed as a percentage of the loan, paid in exchange for a lower interest rate on that same loan. The arithmetic of the size is simple and fixed: one point on a $400,000 loan is $4,000, because one point is 1% of the amount borrowed. The Consumer Financial Protection Bureau puts it plainly — one point equals 1% of the loan amount, and points do not have to be round numbers, so 1.375 points or 0.125 points are both ordinary.
The arithmetic of the benefit is where this gets difficult, and it is not a property of the loan at all. It is a price. The Bureau states that the amount your interest rate falls depends on the specific lender, the kind of loan and the overall mortgage market, and that sometimes you receive a relatively large reduction for each point paid while other times the reduction is smaller.
That second line is why this page asks you for the reduction instead of supplying one. Almost every points calculator on the web multiplies your points by 0.25 and hands back a single answer. That answer is only as good as the assumption, and the assumption is the one figure in the whole calculation that nobody has committed to in writing before you ask. Ask two lenders for a quote on the same day and you will get two different reductions for the same fee.
Set the loan at $400,000 and the rate without points at 7.40%. One point costs $4,000. If that point buys a quarter of a percentage point, the new rate is 7.15%, the payment falls from $2,769.52 to $2,701.63, and the fee is back in your pocket after 59 payments — just under five years.
Now change only the reduction. Keep the loan, keep the fee, keep everything else. A reduction of 0.125 percentage points per point means the fee takes 118 months to recover. A reduction of half a point brings it back in 30. Same $4,000, same loan, same borrower, and a payback period that ranges from two and a half years to nearly ten.
| Reduction per point | Rate after 1 point | Monthly saving | Break-even |
|---|---|---|---|
| 0.125 pp | 7.275% | $34.03 | 118 months |
| 0.25 pp | 7.15% | $67.89 | 59 months |
| 0.375 pp | 7.025% | $101.59 | 40 months |
| 0.5 pp | 6.90% | $135.12 | 30 months |
$400,000 at 7.40% over 30 years, one point, $4,000 paid at closing
This is not a sensitivity analysis bolted onto the result. It is the result. The break-even of a points decision is a comparison between a fee that is known today and a payment reduction that is not, and collapsing four plausible prices into one answer would be the single most misleading thing this page could do.
You will see two ways of expressing a points result, and they can disagree badly, so it is worth being explicit about which one is used here.
The two agree on direction and disagree on usefulness. $24,441 against a $4,000 fee sounds like a decision that makes itself, but it only arrives if the loan survives three decades without a sale, a refinance or a move. The cash figure answers the question you can actually act on: how long must this loan last before the fee has been repaid, and what happens if it does not last that long.
Run the holding-period table with that in mind. On the default inputs the fee is not recovered at three years — you are $1,556 behind — and is only marginally ahead at five, by $74. It is not until seven years that the position is clearly positive, at $1,703, and ten years that it reaches $4,147. The Bureau's own advice points the same way: if you do not know how long you will stay and when you might refinance, points may not be the right trade.
The opposite trade is available and is priced on the same sheet. A lender credit raises your interest rate and pays some of your closing costs, and it is calculated the same way points are — a credit of $4,000 on a $400,000 loan may be described as negative one point, because $4,000 is 1% of the amount borrowed. The Bureau describes the mechanics as points running in reverse.
For a borrower expecting to move or refinance inside the break-even window, a credit can be the better trade by exactly the logic above: taking cash now in exchange for a cost that only materialises if the loan lasts. Which side of the trade suits you depends on the same single input — how long the loan will survive — and this page's holding table is the relevant arithmetic either way.
Two practical cautions. First, the word points is sometimes used loosely for any closing fee charged as a percentage of the loan, whether or not it lowers your rate; the ones that lower your rate must, by law, be disclosed as such on page 2, Section A of the Loan Estimate and the Closing Disclosure. Second, when comparing two lenders, ask each for the same number of points, or the comparison is between two different products. Different lenders are not equally expensive to begin with, and the Bureau's advice is to shop rather than to price one offer in isolation.
Take $400,000 at 7.40% over 30 years with one point and a reduction of 0.25 percentage points per point. The monthly rate is 7.40 ÷ 100 ÷ 12 = 0.006167, and the 30-year payment on that rate is $2,769.52. The discounted rate is 7.40 − 0.25 = 7.15%, at which the same balance and term produce $2,701.63.
The difference is $67.89 a month, and the fee is $400,000 × 1 ÷ 100 = $4,000. Dividing gives $4,000 ÷ $67.89 = 58.9, which rounds up to the 59th payment — about four years and eleven months. Multiply the reduction by 59 instead and you get $4,006, the point at which the accumulated saving passes the fee by six dollars.
A few cents of disagreement with your own working is the rounding order. More than that means one of the two implementations is wrong, and the corrections page explains how to report it.
There is no fixed answer, and any calculator that supplies one is guessing on your behalf. The Consumer Financial Protection Bureau is explicit that the reduction depends on the specific lender, the kind of loan and the market, and that it can be relatively large for one point and smaller for the next. In the Bureau's own worked example, 0.375 of a point on a $180,000 loan cost $675 and lowered the rate from 5.0% to 4.875%, a reduction of one eighth of a percentage point, worth $14 a month. Ask your lender for the reduction in writing on a Loan Estimate and enter that figure here.
This page does not advise. The arithmetic is that the points are a sunk cost the moment they are paid, and the benefit only accrues while the loan survives. On the default inputs the fee needs 59 months to come back, so a sale or refinance before that point leaves you behind by the unamortised part of the fee. The holding-period table shows the position at each length of time so you can match it to your own expectation rather than a general rule.
It produces a lower rate, but the two quotes are not comparable as if one were simply better. A lower rate bought with points trades cash today for cash later, and the size of the trade depends on the price of the point. A loan at 7.15% achieved with $4,000 of points and a loan at 7.15% achieved with none are the same payment and different deals, and the difference is exactly the $4,000.
This page does not model tax and does not answer that question. Whether points are deductible, and in which year, depends on rules that this tool deliberately stays out of. If the tax treatment matters to the decision, treat it as a separate question for a tax professional and use the figures here as the pre-tax arithmetic only.
Nearly always because of the reduction per point, which is a price rather than a formula. If your lender is quoting a larger reduction than the 0.25 used as the default here, enter it and the break-even will shorten. The second most common cause is the term: this page assumes the loan runs to term when it reports lifetime interest, and assumes nothing about escrow, insurance or fees beyond the points themselves.
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Cluster us/mortgage · Unit us-mortgage-points-break-even-calculator · Engine amortizing-loan / points · Method: One point is 1% of the loan amount, paid at closing, and the discounted rate is the note rate less the stated reduction per point. Both payments come from the same amortizing equation, M = L × r / (1 − (1 + r)^−n), at 360 months. The break-even month is the fee divided by the monthly payment difference, so the reported net position at any holding period is arithmetically consistent with that break-even rather than a second, separate estimate.