Points feel like a trick? How do I tell if buying down the rate is worth it?
Read More →
Points feel like a trick? How do I calculate the break-even on discount points?
Key Takeaways
- Break-even equals point cost divided by monthly savings
- Points typically cost 1% of loan amount for 0.25% rate reduction
- Compare break-even time to how long you'll keep the loan
How do I calculate if discount points are worth it?
You want to know when buying discount points saves money compared to accepting your lender's standard rate. Discount points let you pay upfront to reduce your interest rate, but the math determines whether that trade-off works in your favor.
Each discount point typically costs 1% of your loan amount and reduces your rate by about 0.25%. To calculate the break-even point, divide the cost of points by your monthly payment savings. For example, if points cost $3,000 and save you $100 monthly, you break even after 30 months. You save money if you keep the loan longer than 30 months.
Check your Loan Estimate to see the exact cost and rate reduction your lender offers. Calculate your monthly payment with and without points using a mortgage calculator. Compare the upfront cost against how long you plan to stay in the home or keep this loan before refinancing.
Share your timeline with the lender and they can walk you through scenarios that show whether points make sense for your situation.
About the Author
Dan Green
20-year Mortgage Expert
Dan Green is a mortgage expert with over 20 years of direct mortgage experience. He has helped millions of homebuyers navigate their mortgages and is regularly cited by the press for his mortgage insights. Dan combines deep industry knowledge with clear, practical guidance to help buyers make informed decisions about their home financing.
Read more from Dan