Mortgage Points Calculator

Discount points are prepaid interest: you pay the lender cash at closing in exchange for a permanently lower rate on the loan. Origination points are a separate lender fee that pays for processing and underwriting the loan, and they do not buy down the rate. Both are quoted as a percent of the loan amount (1 point equals 1%), so a $400,000 loan with 1 discount point and 1 origination point costs $4,000 plus $4,000 at closing, but only the discount point cuts your monthly payment. This calculator models discount points only.

One point equals 1% of the loan amount, paid upfront at closing. On a $350,000 loan, 1 point costs $3,500, 2 points cost $7,000, and 0.5 points cost $1,750. Lenders typically let you buy points in 0.125 or 0.25 increments, and most cap purchases at 3 or 4 points. The cost is independent of the rate or term, so the only question is whether the monthly savings the points unlock pay back the upfront cost within your time in the home.

The industry rule of thumb is that 1 discount point cuts the rate by 0.25 percentage points (for example, from 7.00% to 6.75%), but the actual ratio varies by lender, loan program, day-of-week pricing, and your credit profile. In a competitive market you may see 0.125% to 0.375% per point. Always ask for a rate-sheet quote with and without points so you can run the real numbers, then plug your lender's exact rate reduction into this calculator.

Divide the upfront cost of the points by the monthly payment savings. For example, 1 point on a $350,000 loan costs $3,500 and might cut the rate from 7% to 6.75%, lowering the monthly P&I from about $2,329 to $2,270, a $59 monthly saving. Break-even is $3,500 / $59 = 59 months, or about 4.9 years. If you plan to keep the loan longer than the break-even (no sale, no refinance), the points pay off; if you might sell or refinance sooner, you usually lose money.

For most US homeowners, discount points on a primary-residence purchase are fully deductible on Schedule A in the year you pay them, provided you itemize, the points are stated separately on the closing disclosure, and they are not unusually high for your area (IRS Publication 936). Points on a refinance or a second home are deducted ratably over the life of the loan, not in the year paid. Origination points are not deductible as interest. Consult a CPA or tax advisor for your specific situation, especially if your itemized deductions are close to the standard deduction threshold.