Discount Points Calculator — Should You Buy Mortgage Points?
See how many months it takes for mortgage discount points to pay for themselves, and whether buying down your rate makes financial sense.
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What Are Mortgage Discount Points?
Discount points are upfront fees you pay to the lender at closing in exchange for a lower interest rate. Each point costs 1% of the loan amount and typically reduces your rate by about 0.25%. The key question is whether the monthly savings from the lower rate will exceed the upfront cost before you sell or refinance.
How to Decide If Points Are Worth It
The decision depends on how long you plan to keep the loan. If your breakeven is 60 months (5 years) and you expect to stay in the home for at least 7 years, points likely pay for themselves. If you might sell or refinance sooner, the upfront cost may not be recovered. This calculator shows you the exact breakeven point so you can make an informed choice.
Frequently Asked Questions
What are discount points on a mortgage?
Discount points are upfront fees paid to the lender at closing in exchange for a lower interest rate. Each point costs 1% of the loan amount and typically reduces the rate by about 0.25%. They are also called "buying down the rate."
How long does it take for mortgage points to pay for themselves?
The breakeven period is the total cost of the points divided by the monthly savings they create. For example, if one point costs $3,000 and saves $50 per month, it takes 60 months (5 years) to break even. If you plan to stay in the home longer than the breakeven, points usually pay off.
Are mortgage points tax deductible?
In the United States, discount points are generally tax deductible in the year you close on the mortgage, as prepaid home mortgage interest. However, tax rules vary by country and situation. Consult a tax professional for advice specific to your case.