Discount Points Break-Even CalculatorFree online financial calculator — instant results, no sign-up
Compare upfront mortgage points with monthly savings over the same loan term.
Estimates only, based on the inputs and assumptions shown. This is not financial, investment, tax, or legal advice. Prices, rates and local rules may change; crypto scenarios do not predict returns. Confirm important decisions with a qualified professional.
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About the Discount Points Break-Even Calculator
The Discount Points Break-Even Calculator compares the upfront cost of mortgage discount points with the monthly principal-and-interest savings from a lower interest rate. It holds the loan principal and term constant so you can estimate how long those savings take to recover the points cost. Use the result to assess whether buying points fits how long you expect to keep the mortgage.
- Principal ($)
- The mortgage amount in dollars used for both payment calculations and the points cost, with a default of $300,000.
- Original rate (%)
- The annual mortgage interest rate before purchasing points, expressed as a percentage, with a default of 6.5%.
- Discounted rate (%)
- The annual mortgage interest rate offered after purchasing points, expressed as a percentage, with a default of 6.25%.
- Term (months)
- The repayment period used for both mortgage options, measured in months, with a default of 360.
- Points purchased (points)
- The number of discount points purchased, where one point costs 1% of the principal, with a default of 1 point.
Formula and method
r_o = R_o / 1200; r_d = R_d / 1200. For r > 0, M(P, r, n) = P × r / [1 − (1 + r)^(−n)]; for r = 0, M(P, 0, n) = P / n. C = P × p / 100; S = M(P, r_o, n) − M(P, r_d, n); B = C / S when S > 0. With P = 300000, R_o = 6.5, R_d = 6.25, n = 360, and p = 1: upfront points cost = $3,000.00; monthly savings = $49.05; simple break-even = 61.159 months.
- PLoan principal in dollars.
- R_oOriginal annual interest rate entered as a percentage.
- R_dDiscounted annual interest rate entered as a percentage.
- r_oOriginal monthly interest rate expressed as a decimal.
- r_dDiscounted monthly interest rate expressed as a decimal.
- rMonthly decimal interest rate supplied to the payment formula.
- nLoan term in months.
- pNumber of discount points purchased.
- M(P, r, n)Monthly principal-and-interest payment in dollars.
- CUpfront points cost in dollars.
- SMonthly principal-and-interest savings in dollars.
- BSimple break-even period in months.
Convert each annual percentage rate to a monthly decimal rate, then calculate the fully amortizing monthly payment at each rate using the same principal and term. Subtract the discounted-rate payment from the original-rate payment to find monthly savings. Calculate the upfront points cost as the principal multiplied by the points percentage, then divide that cost by the monthly savings. Retain full precision during calculation and round only the displayed results.
Worked example
These are the calculator's starting values and the results it actually produces for them.
Inputs
- Principal300000 $
- Original rate6.5 %
- Discounted rate6.25 %
- Term360 months
- Points purchased1 points
Results
- Upfront points cost$3,000.00
- Monthly savings$49.05
- Simple break-even61.159
How to use the Discount Points Break-Even Calculator
- 1Enter the mortgage principal and repayment term in months; the defaults are $300,000 and 360 months.
- 2Enter the original rate and the lender's discounted rate; the defaults are 6.5% and 6.25%.
- 3Enter the number of points required for the discounted rate; the default is 1 point.
- 4Review the upfront points cost, monthly savings, and simple break-even period.
- 5Compare the break-even period with how long you expect to keep the mortgage before selling, refinancing, or paying it off.
Reading your result
Upfront points cost is the cash paid for the rate reduction: $3,000.00 with the default inputs. Monthly savings is the reduction in the principal-and-interest payment: $49.05 per month. Simple break-even is the points cost divided by the unrounded monthly savings: 61.159 months. Because payments occur monthly, cumulative payment savings first cover the points cost with the 62nd payment. Keeping the mortgage beyond that point produces payment savings exceeding the points cost under this simplified comparison.
Limitations
This calculation assumes fixed-rate, fully amortizing mortgages with equal monthly payments, identical principal and term, and points paid upfront rather than financed. It excludes other closing-cost differences, taxes, insurance, mortgage insurance, tax effects, investment returns on the upfront cash, and the time value of money. It compares payment savings only, not differences in remaining loan balances when selling or refinancing. A positive points cost cannot be recovered through payment savings if the discounted rate produces no savings; a break-even period longer than the loan term is not reached during scheduled repayment. The rate reduction available per point depends on the lender and market conditions.
Common questions
Does buying one point always lower the rate from 6.5% to 6.25%?+
No. One point defines a cost of 1% of the principal, not a guaranteed rate reduction. The default comparison assumes a lender offers 6.25% instead of 6.5% for 1 point; enter the rates and points from your actual quote.
Why does dividing $3,000.00 by $49.05 not reproduce 61.159 exactly?+
The displayed monthly savings is rounded to cents. The break-even calculation uses the unrounded difference between the two mortgage payments before displaying 61.159 months.
What happens if I refinance before the break-even point?+
If you refinance before cumulative monthly savings recover the points cost, the points have not paid for themselves through payment savings alone. In the default example, recovery requires 61.159 months mathematically, or 62 scheduled monthly payments.
Can I use this result if I add the points cost to my mortgage?+
Not directly. Financing the points increases the loan principal and adds interest on that cost, while this tool holds principal constant and treats points as an upfront cash expense. Compare the actual financed loan amounts and payments separately.
Does the calculator save my information?+
Calculations run in your browser. While signed in, inputs and results are automatically recorded in account history; saving a result creates a separate saved record.
Further reading
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Results are estimates for informational purposes and are not financial, medical or legal advice.