Break Even Mortgage Points Calculator

Determine when paying mortgage points becomes cost-effective by calculating the break-even point where the savings from lower interest rates outweigh the points' upfront cost.

What are mortgage points?

Mortgage points are fees paid to the lender at closing, expressed as a percentage of the loan amount. Each point equals 1% of the loan. For example, 1 point on a $200,000 loan is $2,000.

Key Points

Points reduce your interest rate
Paid upfront at closing
Typically 0.25 to 1.5 points
Can be bought down or refinanced later

Points are often used to:

Qualify for a lower interest rate
Improve your loan terms
Access certain loan programs
Build equity faster

How to calculate break-even points

The break-even point is the number of years it takes for the savings from lower interest rates to equal the cost of the points. The formula is:

Break-even formula

Break-even years = Points cost / (Annual savings from lower interest rate)

Where:

Points cost = Points × Loan amount
Annual savings = (Original interest rate - New interest rate) × Loan amount

The break-even point helps you decide whether to pay points now or save for a lower rate later.

Example calculation

Let's calculate the break-even point for a $200,000 loan with 1 point (1% of loan amount) that reduces the interest rate from 6% to 5%.

Item	Calculation	Value
Points cost	1 point × $200,000	$2,000
Annual savings	(6% - 5%) × $200,000	$6,000
Break-even years	$2,000 / $6,000	0.33 years

In this example, the break-even point is 0.33 years (about 4 months). This means you'll break even on the points in less than a year if you keep the lower interest rate.

Frequently Asked Questions

What are mortgage points used for?: Mortgage points are used to lower your interest rate, improve your loan terms, qualify for certain loan programs, or build equity faster.
How do I calculate break-even points?: Use the formula: Break-even years = Points cost / (Annual savings from lower interest rate).
When should I pay mortgage points?: Pay points if the break-even period is shorter than the time you expect to keep the lower interest rate. Otherwise, save the points for a future loan.
Can I buy down points later?: Yes, you can buy down points during refinancing if interest rates have fallen and the break-even period is favorable.
Are there any other costs associated with points?: Points are typically paid at closing, but some lenders may offer discounts or payment plans for multiple points.