Mortgage Point Break Even Calculator

Buying a mortgage point can lower your interest rate, but it costs money upfront. This calculator helps you determine when the savings from a lower rate will offset the cost of the point, showing you the break-even period in months.

What is a Mortgage Point?

A mortgage point is 1% of the loan amount that you pay upfront to the lender. In exchange, the lender reduces your interest rate by a certain amount, typically 0.25% to 1%.

Key Concepts

1 point = 1% of the loan amount
Typically reduces interest rate by 0.25% to 1%
Costs more than the savings if you sell or refinance before the break-even point

Points are often used when you want to lock in a lower interest rate, especially when rates are expected to rise. However, they're only worth it if you plan to keep the loan for the full break-even period.

How to Use This Calculator

Enter your loan amount (the principal)
Enter the interest rate you'd get without a point
Enter the interest rate you'd get with the point
Enter the number of points you're buying
Enter your loan term in years
Click "Calculate" to see the break-even period

The calculator shows you how many months you need to keep the loan to make the point worth it. If you sell or refinance before this period, the point was a bad investment.

Formula Used

The break-even period is calculated by comparing the cost of the points with the savings from the lower interest rate.

Break-even period (months) = (Cost of points) / (Monthly savings from lower rate)

Where:

Cost of points = Loan amount × Number of points × 0.01
Monthly savings = (Loan amount × (Original rate - New rate) × 0.01) / 12

Worked Example

Let's say you're getting a $200,000 mortgage with these terms:

Original rate: 6.5%
Rate with 1 point: 6.25%
Loan term: 30 years

The cost of 1 point is $2,000 ($200,000 × 1% × 1).

The monthly savings from the lower rate is $12.50 ($200,000 × (6.5% - 6.25%) × 0.01 / 12).

The break-even period is $2,000 / $12.50 = 160 months (13.3 years).

This means you need to keep the loan for at least 13 years and 4 months to make the point worth it.

Frequently Asked Questions

What's the difference between a point and a discount point?: A point is paid upfront and reduces your interest rate. A discount point is a point that's included in the loan rate, meaning you're already paying for it through higher monthly payments.
Can I get more than one point?: Yes, you can buy multiple points to get a larger interest rate reduction. Each additional point typically reduces the rate by an additional 0.25%.
Are points only for conventional loans?: Points are most common with conventional loans, but they can also be used with FHA and VA loans. The rules and benefits may vary by loan type.
What if interest rates rise after I buy a point?: If rates rise, your break-even period will be shorter. You may need to refinance to take advantage of lower rates and avoid paying for unnecessary points.