Is it better to buy points or make a larger down payment?

It depends on your goals. A larger down payment lowers your loan balance, may remove PMI, and builds equity, while points lower your rate and monthly payment. Points only pay off if you stay long enough to recoup the upfront cost; a larger down payment helps regardless of how long you stay. Run both scenarios before deciding.

Mortgage Points Calculator — Are Discount Points Worth It?

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Walk-through

How to Use This Calculator

4 steps

1

Enter your loan and rate

Type in your loan amount, choose a term (15, 20, or 30 years), and enter the base interest rate your lender quoted you with no points. This is the rate you are comparing against.

2

Add the points and the rate reduction

Enter how many discount points you are considering (1 point = 1% of the loan) and how much each point lowers your rate — typically 0.20%–0.25%. Use the exact figures from your Loan Estimate when you have them; lenders price points differently.

3

Set how long you will stay

Enter the number of years you expect to keep this loan before selling or refinancing. The calculator compares your break-even month to that horizon.

4

Read the verdict and the tabs

The result card shows the break-even month and a plain-language verdict. Open the Break-Even tab to see exactly when the points pay for themselves, and the Lifetime Savings tab to compare total interest both ways.

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Reference

Formula & Methodology

4 formulas

Monthly payment (fixed-rate amortization)

M = P · r(1+r)^n / ((1+r)^n − 1)

P = loan amount, r = monthly interest rate (annual rate ÷ 12 ÷ 100), n = number of monthly payments (years × 12). When r = 0 the payment is simply P ÷ n. The payment is computed once at the base rate and once at the bought-down rate.

Cost of points and the bought-down rate

Points cost = Loan × Points × 1% ; New rate = Base rate − (Points × Reduction per point)

Each point costs 1% of the loan amount. The note rate falls by the reduction-per-point times the number of points, floored at 0%.

Break-even point

Break-even months = Points cost ÷ Monthly savings

Monthly savings = payment without points − payment with points. The break-even month is when your accumulated savings equal what you paid for the points. If there is no monthly saving, the points never break even.

Lifetime interest saved

Interest = (Monthly payment × n) − P ; Saved = Interest(base) − Interest(bought)

Over the full term, the lower rate reduces total interest. Net lifetime savings subtracts the upfront points cost from the interest saved.

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Trust, Methodology & Sources

Written by Calculover Editorial Team · Updated 2026-06-13 · 3 sources

Editorial accountability

Author: {{^authorProfileUrl}}Calculover Editorial Team{{/authorProfileUrl}} - Personal finance content

Owner: Calculover Editorial Team - Editorial owner

Last reviewed: 2026-06-13

Last verified: 2026-06-13

Methodology

Monthly payments use the standard fixed-rate amortization formula M = P·r(1+r)^n/((1+r)^n−1). Each discount point costs 1% of the loan and lowers the note rate by the user-entered reduction per point. Break-even = points cost ÷ monthly savings; lifetime interest = (payment × months) − principal at each rate.

Assumption: A permanent, fixed-rate buydown held for the entered horizon (not a temporary 2-1 buydown or an ARM).

Assumption: Points cost exactly 1% of the loan amount each, and the rate reduction per point is constant.

Assumption: Monthly payment covers principal and interest only — taxes, insurance, and PMI are excluded.

Limitations & guidance

Point pricing and the rate reduction per point vary by lender, credit profile, and market — this is an estimate, not a loan offer.

Tax deductibility of points (IRS Publication 936) is not modeled and can change the result.

Does not account for the opportunity cost of the upfront cash, PMI changes, or lender credits (negative points).

Professional guidance: This calculator is for educational purposes only and is not financial, tax, or legal advice. Discount-point pricing varies by lender and market, and the right choice depends on your full financial picture. Consult a licensed mortgage professional (NMLS-registered) before deciding whether to buy points.

Primary sources

CFPB — What are (discount) points and lender credits and how do they work?

IRS Publication 936 — Home Mortgage Interest Deduction

FRED — 30-Year Fixed Rate Mortgage Average

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Glossary

Key Terms Explained

5 terms

Discount point An upfront fee equal to 1% of the loan amount, paid at closing to permanently lower the loan's interest rate. Also called a 'mortgage point' or simply a 'point'.

Rate buydown Reducing your mortgage interest rate by paying discount points. A permanent buydown lowers the rate for the entire loan term; a temporary buydown (e.g. 2-1) lowers it only for the first year or two — this calculator models a permanent buydown.

Break-even point The month at which the cumulative monthly savings from a lower rate equal the upfront cost of the points. Past this month, the points have paid for themselves.

Note rate vs APR The note rate is the interest rate used to calculate your monthly payment. The APR folds in points and certain fees to reflect the loan's total yearly cost — so buying points lowers your note rate but the effect on APR depends on the fees included.

Lender credit (negative points) The opposite of buying points: the lender pays some of your closing costs in exchange for a higher interest rate. Useful when you are cash-constrained or expect to move or refinance soon.

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Scenarios

Real-World Examples

3 worked examples

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Long-term buyer — worth it

Staying past break-even

Loan amount $400,000 Term 30 years Base rate 7.00% Points 1 ($4,000) Reduction per point 0.25% Years in home 7

One point costs $4,000 and drops the rate to 6.75%, cutting the payment by about $67/month. The break-even lands near month 60 (5 years). Because this buyer plans to stay 7 years, they clear break-even with two years to spare and save roughly $1,600 net by the time they move — and far more in interest if they keep the loan longer. Buying the point is worth it.

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Short-term owner — skip it

Selling before break-even

Loan amount $400,000 Term 30 years Base rate 7.00% Points 1 ($4,000) Reduction per point 0.25% Years in home 3

Same loan and same point, but this owner expects to move in 3 years (36 months). With break-even near month 60, they sell roughly two years before the point pays off and end up about $1,600 behind. The smarter move is to keep the $4,000, take the higher rate, or ask for a lender credit instead.

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Aggressive buydown

Two points on a long hold

Loan amount $400,000 Term 30 years Base rate 7.00% Points 2 ($8,000) Reduction per point 0.25% Years in home 10

Two points cost $8,000 and lower the rate to 6.50%, roughly doubling both the upfront cost and the monthly savings — so the break-even month stays about the same (~5 years). Over a 10-year hold the deeper buydown saves more total interest, but only because this buyer stays well past break-even. Doubling points does not change when you break even; it changes how much you save after you do.

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Deep Dive

Understanding Mortgage Points: When Buying Down Your Rate Pays Off

3 chapters · 4 min read

Discount points let you trade cash at closing for a lower mortgage rate. Whether that trade is smart comes down to one number — the break-even month — and one decision you can only estimate: how long you will actually keep the loan. This calculator turns those into a clear yes or no.

How mortgage points work

A discount point costs 1% of your loan amount and permanently lowers your interest rate, usually by about 0.25% per point. On a $400,000 loan, one point is $4,000 paid at closing. That fee lowers your monthly payment for the life of the loan — so the question is whether the monthly savings eventually add up to more than the upfront cost.

The break-even rule

Break-even is the heart of the decision: divide the points cost by the monthly savings to find how many months it takes to get your money back. $4,000 in points that save $67 a month breaks even at about 60 months. Stay past that point and every payment afterward is pure savings. Sell or refinance before it, and you paid more than you saved. The single most useful comparison is break-even versus how long you honestly expect to keep the loan — and most people overestimate how long they stay.

When not to buy points

Skip points if you might move or refinance before break-even, if you are short on cash at closing, or if the rate reduction offered per point is small. In a falling-rate market, paying to buy down a rate you may refinance away from within a year or two rarely pays off — you would be better served keeping the cash or taking a lender credit (negative points), where the lender covers some closing costs in exchange for a slightly higher rate. Points can also be weighed against a larger down payment, which lowers your balance, may remove PMI, and helps no matter how long you stay.

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Questions

Frequently Asked Questions

7 questions

What is a mortgage discount point?+

A discount point is an upfront fee — 1% of the loan amount — that you pay the lender at closing to permanently lower your interest rate, typically by around 0.25% per point. On a $400,000 loan, one point costs $4,000.

How do I know if buying points is worth it?+

Compare the break-even month (points cost ÷ monthly savings) to how long you plan to keep the loan. If you stay past break-even — ideally with a comfortable buffer — points pay off. If you expect to sell or refinance first, you lose money on the deal.

How is the break-even point calculated?+

Break-even months = total points cost ÷ monthly payment savings. For example, $4,000 of points that lower your payment by $67/month break even at roughly 60 months (5 years). Every payment after that is savings versus not buying points.

Are mortgage points tax deductible?+

Points on a primary-home purchase loan are often deductible in the year paid if you itemize and meet IRS conditions (IRS Publication 936); points on a refinance usually must be spread over the loan's life. This calculator does not model taxes — confirm deductibility with a tax professional, as it can improve the case for buying points.

Is it better to buy points or make a bigger down payment?+

It depends on your goals. Points lower your rate and payment but only pay off if you stay long enough to recoup the cost. A larger down payment lowers your balance, may eliminate PMI, and builds equity regardless of how long you stay. Run both and compare.

Does buying two points double my savings?+

Two points roughly double both the upfront cost and the monthly savings, so the break-even month stays about the same. What changes is how much you save after break-even — a deeper buydown only wins if you keep the loan well past that point.

Can I share or save my scenario?+

Yes. The calculator encodes your inputs in the page URL, so the Share button copies a link that reproduces your exact scenario. Your inputs are also saved locally in your browser so they are there when you return.

Download a one-page PDF of your numbers instantly. Add your email to also get our occasional calculator tips — no spam, unsubscribe anytime. Privacy.

Mortgage Points Calculator

Loan & Points

Break-Even Point

When Do the Points Pay for Themselves?

Lifetime Cost of Each Choice

Net advantage at common exit horizons

Methodology & Professional Guidance

How This Calculator Works

Limitations & Assumptions

References & Sources

How to Use This Calculator

Enter your loan and rate

Add the points and the rate reduction

Set how long you will stay

Read the verdict and the tabs

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Long-term buyer — worth it

Short-term owner — skip it

Aggressive buydown

Understanding Mortgage Points: When Buying Down Your Rate Pays Off

How mortgage points work

The break-even rule

When not to buy points

Frequently Asked Questions

Get a branded PDF of your results

Mortgage Points Calculator

Loan & Points

Break-Even Point

Methodology & Professional Guidance

How This Calculator Works

Limitations & Assumptions

References & Sources

How to Use This Calculator

Enter your loan and rate

Add the points and the rate reduction

Set how long you will stay

Read the verdict and the tabs

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Understanding Mortgage Points: When Buying Down Your Rate Pays Off

How mortgage points work

The break-even rule

When not to buy points

Frequently Asked Questions

Get a branded PDF of your results

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