Mortgage Points Calculator

What Discount Points Actually Buy You

A discount point is a one-time, upfront fee that lowers your mortgage rate for the entire life of the loan. The pricing convention is fixed at 1% of the loan amount per point — one point on a $300,000 loan costs $3,000. In exchange, the lender drops your rate by a buy-down amount they set, typically in the 0.20%–0.30% range per point, with 0.25% being the most common number on real-world rate sheets.

That rate cut compounds across every payment for the rest of the loan. On a $300,000 30-year mortgage, taking the rate from 6.75% to 6.50% saves roughly $50 a month — small in any given month, but $18,000 over 30 years. The question is never "is the monthly cheaper" (it always is) — it's how long does it take to recover the upfront cost, and will you still be holding this loan when that day arrives.

That's the break-even calculation, and it's the only one that matters when deciding whether to buy points.

Discount Points vs. Origination Fees

Both are quoted in "points," both show up on the loan estimate, and both are calculated as 1% of the loan amount each. That's where the similarity ends.

• Discount points are optional and produce a permanent rate reduction. You are buying down the rate.
• Origination points / origination fee are what the lender charges to originate, underwrite, and close the loan. They are not optional with that lender and they do not change your rate.

When you compare loan estimates from two lenders, separate the discount points from the origination fee on each side before doing any math. A loan with one origination point and no discount points isn't equivalent to a loan with one discount point and no origination fee — the second one comes with a lower rate that lasts 30 years.

When Buying Points Is a Bad Deal

The math itself almost always shows monthly savings — that part isn't the decision. The decision is whether you'll be in the loan long enough to recover the upfront cost. Three scenarios where points reliably lose money:

• Short expected stay.If you're likely to sell within the break-even window (typically 5–7 years on a 0.25%-per-point buy-down), you'll walk away from the points before they've paid for themselves. The U.S. median homeowner moves every 8 years; first-time buyers move sooner.
• Likely refinance.Points are a bet that you'll still hold this loan after the break-even date. If rates drop and you refinance, the new loan replaces the old one — your bought-down rate is gone, and the points cash with it. Avoid points when rates feel high or the curve is steeply inverted; both are setups for a refinance window inside the break-even period.
• Better use of the cash.If using that money for a larger down payment would push you past 20% LTV and eliminate PMI entirely, that's usually the bigger lever. Same goes for paying off a credit card at 22% APR, or hitting an employer 401(k) match. Compare points against the next-best use of the same dollars, not against the do-nothing alternative.

Negative Points & Lender Credits — the Mirror Case

The opposite of buying points is taking negative points, also called lender credits or rebate pricing. The lender pays a portion of your closing costs in exchange for a higher interest rate. Same math, flipped: you save cash upfront and pay more interest over time.

The break-even works the same way, in reverse. Lender credits are a good deal when:

• You're tight on closing-day cash and would rather not stretch to the full closing costs.
• You expect to sell, refinance, or pay off the loan before you would have caught up to the higher-rate payments — short expected stays and likely-refinance scenarios both favor credits over points.
• You expect rates to drop in the next 1–3 years. The credit-paid closing costs are real money in hand; the higher rate gets replaced when you refinance.

For long-term holders with cash on hand and a flat or rising rate outlook, discount points win. For short-term holders, refinance-likely borrowers, or anyone who'd rather keep the cash, lender credits often win. The calculator above handles both directions — enter a negative number in the points field to see the lender-credit scenario.

The Tax Angle on Points

Discount points on a primary residence are generally treated as prepaid mortgage interest by the IRS. On a purchase loan, you can usually deduct the full amount in the year you paid them, provided several conditions are met — the loan is secured by your main home, the points are an established practice in your area, and the amount isn't excessive. On a refinance, points must be amortized over the life of the new loan: $3,000 of points on a 30-year refi means $100 per year of deductible interest, not a single big deduction.

The catch: deductions only matter if you itemize. With the post-TCJA standard deduction at roughly $30,000 for joint filers, most homeowners don't itemize and the tax benefit on points is effectively zero. Don't let a vague "they're tax-deductible" line from a loan officer change the break-even math — confirm with a tax pro what the deduction is actually worth to you.

How to Read Your Lender's Rate Sheet

Every loan estimate should show three rate options: par (zero points, zero credits), buy-down with points, and rebate pricing with lender credits. The rate-reduction-per-point in this calculator's default (0.25%) is a placeholder — the only number that matters is the one on your lender's sheet for your loan on that day.

Ask for the buy-down sheet explicitly. Look at the rate at 0 points, the rate at 1 point, and the rate at 2 points. Plug the actual difference into this calculator. If your lender's sheet shows less than 0.20% per point of buy-down, points are priced poorly that day and you should usually take par or a credit instead.