Mortgage Points Calculator
A break-even month means nothing without the horizon it is measured against. This puts them side by side.
The loan
Rate options
Temporary buydown
A 2-1 buydown: 2% off the note rate in year one, 1% in year two, then the real payment. The note rate never changes.
Assumptions
Cheapest over your hold
Half a point
$84,711 over 36 months, points included
An option breaks even after you expect to be gone. Paying points is a bet that you still have the loan on the break-even month. Most borrowers sell or refinance before theirs arrives.
| No points | $2,728.717.25% · $0 pointsNo points to recover · net $85,727 |
|---|---|
| Half a point | $2,661.217.00% · $2,000 pointsCheapestBreak-even 29.6 months · net $84,711 · −$700 vs par after opportunity cost |
| One and a half | $2,594.396.75% · $6,000 pointsBreaks even too lateBreak-even 44.7 months · net $85,698 · +$917 vs par after opportunity cost |
Temporary 2-1 buydown
- Year 1 at 5.25%$2,208.81
- Year 2 at 6.25%$2,462.87
- From month 25$2,728.71
Costs $9,429 escrowed at closing and steps up $265.84 — 10.79% — in month 25. Someone paid for that subsidy, and it is usually priced into what you paid for the house.
Estimates only. Whether paying points is worth it depends on how long you actually keep the loan, which nobody knows in advance — the median owner sells or refinances far sooner than they expect. Not a loan commitment or an offer of credit.
Points are a bet on how long you stay
Every points calculator gives you a break-even month, and then stops. Break-even in 45 months. Fine — but the number that decides the question is the one nobody asks for: how long will you actually have this loan?
Run the default scenario. Half a point on $400,000 buys the rate down from 7.25% to 7%, costs $2,000, and breaks even at 29.6 months. One and a half points buys 6.75%, costs $6,000, and breaks even at 44.7 months.
At a three-year horizon the first one pays off and the second does not. The deeper buydown has a better rate, a lower payment, and a break-even you will never reach. It looks like the better deal on every line of the term sheet, and it is the worse one.
It gets slightly worse than that. Even measured purely on net cost over the hold, the deepest option comes out only $28.75 ahead — a rounding error. Charge the $6,000 its opportunity cost at 5% over those three years and the position flips: it costs you about $917 more than paying no points at all. That money was yours; spending it on a rate has to beat what it could otherwise have done.
Drag the hold slider out to ten years and the ordering reverses. The deepest buydown becomes clearly right. That is the honest shape of the question: points are not good or bad, they are a wager on tenure, and the only input that matters is the one you are least certain about.
The temporary buydown at the bottom of the page is a different animal, and worth understanding before someone offers you one. A 2-1 buydown is not a rate reduction — the note rate never changes. It is a lump sum escrowed at closing, released monthly to cover the gap. On this loan it costs $9,428.72, and in month 25 the payment steps up $265.84, almost 11%.
When a builder or a seller pays for that, it is not a gift — it is generally priced into what you paid for the house. And the plan implicit in accepting one is usually “I will refinance before it expires,” which is a plan that depends on rates you do not control. If you would not be comfortable with the note payment in year three, the buydown has not made the house affordable. It has postponed the question.
For the loan itself — total interest, PMI, extra payments — the mortgage calculator covers it, and the loan comparison calculator applies this same horizon logic across competing quotes.
Methodology
- Break-even = extra points cost ÷ monthly payment saving, both measured against the option with the fewest points.
- Net cost over the hold = points + interest paid across the expected hold. Principal retired is not a cost — it is equity — so it is excluded.
- Opportunity cost = what the points money would have grown to at the stated rate over the hold, less the points themselves.
- Temporary buydown subsidy = the sum, across the reduced years, of twelve times the gap between the note payment and the subsidised payment.
Not modelled: the tax treatment of points, which can be deductible in the year paid on a purchase and must generally be amortized on a refinance; lender credits (negative points); or the possibility of refinancing before break-even, which is the main way points end up wasted.
Frequently asked questions
- Is it worth paying points on a mortgage?
- Only if you keep the loan past the break-even month, and most borrowers do not. A break-even of 45 months is not a fact about the loan — it is a bet that you will still have it almost four years from now, through any rate drop that might tempt you to refinance and any life event that might move you.
- How do you calculate the break-even on discount points?
- The cost of the points divided by the monthly payment saving they buy. Half a point on $400,000 costs $2,000 and saves $67.50 a month, so it recovers in about 30 months. That is the standard calculation, and on its own it is only half the answer — it ignores what the $2,000 would have earned had you kept it.
- Why does the calculator charge an opportunity cost?
- Because the money spent on points is money you had. On the default scenario the deepest buydown looks like a $28.75 saving over a three-year hold and becomes a $917 loss once you account for what $6,000 would have earned at 5% over the same three years. That is a real cost, and leaving it out is how points get oversold.
- What is a 2-1 buydown and who pays for it?
- It is not a rate reduction at all. It is a lump sum escrowed at closing that covers the gap between a reduced payment and the real one — 2% off in year one, 1% in year two, then the note payment. The note rate never changes. On a $400,000 loan at 7.25% that subsidy costs $9,428.72, and someone paid it. When a builder or seller offers one, it is usually priced into what you paid for the house.
- What happens when a temporary buydown expires?
- The payment steps up to what it was always going to be. On the default scenario that is a jump of $265.84 a month — nearly 11% — in month 25. The risk is buying at a payment you can afford in year one and inheriting one you cannot in year three, on the assumption that you will refinance before then.
- Should I take points or a shorter term?
- They solve different problems. Points lower the rate on the term you choose; a shorter term cuts total interest dramatically but raises the payment and commits you to it. If the goal is less interest overall, a shorter term or voluntary extra payments usually beat points — and both keep your flexibility, which points do not.
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