Mortgage Points Calculator

Category: Mortgage and Real Estate
- May 22, 2025
| |

Calculate whether buying mortgage points is worth it based on your loan details and how long you plan to keep the mortgage.

Mortgage points (or discount points) are fees you pay to your lender at closing in exchange for a reduced interest rate.

Loan Information

$

Points Information

1

Advanced Options

About Mortgage Points

Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called "buying down the rate," which can lower your monthly mortgage payments.

How Mortgage Points Work
  • Each point costs 1% of your mortgage amount. For example, one point on a $300,000 mortgage would cost $3,000.
  • The rate reduction varies by lender. Typically, one point reduces your interest rate by 0.25%, but this can vary.
  • Points are tax-deductible in the year you pay them if you itemize deductions (for primary residences).
When to Consider Buying Points
  • Long-term homeownership: If you plan to stay in your home beyond the breakeven point, points can save you money.
  • Fixed-rate mortgages: Points generally make more sense with fixed-rate loans than adjustable-rate mortgages.
  • Available cash: You need to have enough cash on hand to cover closing costs plus points.
Calculation Methodology

This calculator determines whether points are worthwhile by:

  1. Calculating your monthly payment with and without points
  2. Determining monthly savings from reduced interest
  3. Computing the breakeven point (when savings exceed the cost of points)
  4. Analyzing total savings over your expected time in the home
  5. Considering the time value of money and potential tax benefits

Understanding Mortgage Points

Mortgage points, often called discount points, are fees you pay to your lender when you close on a loan. These payments help lower your interest rate, meaning your monthly mortgage payments can be less. Each point typically costs about 1% of your total loan amount and can lead to significant savings over time.

How the Mortgage Points Calculator Works

This calculator helps you figure out if buying mortgage points makes sense for you. By entering details about your loan, like the amount and interest rate, it shows how points can impact your payments. It also estimates how much you can save and when those savings will outweigh the costs of buying points.

Key Inputs for Your Calculation

  • Loan Amount: The total amount you're borrowing.
  • Loan Term: The length of your mortgage, usually 10 to 30 years.
  • Base Interest Rate: Your current interest rate without points.
  • Expected Years in Home: How long you plan to stay in your home.

Options for Buying Points

The calculator lets you explore different options for buying points. You can enter how many points you want to buy and what interest rate reduction you expect from them. This way, you can see the effects of various scenarios on your mortgage payments.

Advanced Features to Consider

When using the calculator, you can also look at advanced options. This includes your marginal tax rate and any alternative Investment rates. These factors help you understand the overall Financial picture, including potential tax deductions from buying points.

What to Expect from the Results

  • Best Option: See which option, buying points or not, is best for your situation.
  • Monthly Savings: Get an idea of how much less you’ll pay each month.
  • Breakeven Analysis: Find out how long it will take for savings to cover the cost of the points.

Comparing Different Scenarios

The calculator gives a detailed comparison of the options available to you. It creates a table highlighting the monthly payments, upfront costs, and total savings for each scenario. This way, it’s easier to decide what's best for your finances.

Additional Resources on Mortgage Points

Understanding mortgage points can be complex, but there’s plenty of information available. Learn when it's best to buy points, how points can impact your mortgage, and the potential tax benefits involved. By knowing more, you can make informed decisions that suit your financial goals.