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How It Works
A mortgage point equals 1% of the loan amount, paid upfront at closing. Each point typically reduces the interest rate by about 0.25%. Buying points makes sense if you plan to keep the loan long enough for the monthly savings to exceed the upfront cost.
This calculator finds the dollar cost of one point and the total cost when buying multiple points. You can also reverse the calculation to find how many points you paid based on the cost.
Example Problem
You take a $300,000 mortgage and buy 2 points to lower your rate.
- Cost of one point: $300,000 / 100 = $3,000
- Cost of 2 points: $3,000 × 2 = $6,000
If each point reduces your rate by 0.25%, you drop from 7% to 6.5%, saving about $100/month. The break-even point is $6,000 / $100 = 60 months (5 years).
Frequently Asked Questions
Are mortgage points tax deductible?
Points paid on a purchase mortgage are usually deductible in the year paid. Points on a refinance must be amortized over the life of the loan. Consult a tax professional for your specific situation.
How many points should I buy?
It depends on how long you plan to keep the loan. Calculate your break-even period: divide the points cost by the monthly savings. If you plan to stay longer than the break-even, points are worthwhile.
What is the difference between discount points and origination points?
Discount points reduce your interest rate. Origination points are a lender fee for processing the loan. Both equal 1% of the loan amount, but only discount points lower your rate. On a $250,000 loan, each point costs $2,500.
Related Calculators
- Mortgage Loan Calculator — see how rate changes affect payments.
- Loan to Value Calculator — assess your LTV ratio.
- Interest Rate Calculator — compare interest rate scenarios.
- Loan Calculator — general loan amortization with payment schedule.
- Rule of 72 Calculator — quickly estimate how long it takes money to double.
Reference: Brueggeman, William B. and Fisher, Jeffrey D. Real Estate Finance and Investments. McGraw-Hill Education.