What this calculator does
A discount point costs one per cent of the loan and buys a lower interest rate. Whether it is worth paying comes down to a single question: will you keep the loan long enough for the monthly saving to repay the upfront cost.
The breakeven is remarkably stable across point counts when the rate reduction is proportional. At a quarter point of rate per point purchased, the breakeven sits near 60 months whether you buy half a point or three, so the decision is really about how long you will stay.
The formula
Payments are calculated at both rates on the same loan and term. The point cost is a percentage of the loan, and dividing it by the monthly saving gives the breakeven in months.
| Term | Meaning |
|---|---|
| Discount point | One per cent of the loan amount, paid upfront to reduce the rate. |
| Breakeven period | Months of saving needed to recover the cost of the points. |
| Holding period | How long you expect to keep the loan, which decides whether points pay off. |
The inputs explained
| Field | What to enter |
|---|---|
| Loan amount ($) | The loan amount. |
| Loan term (years) | The loan term in years. |
| Rate without points (%) | The interest rate available without buying points. |
| Points purchased | Number of points purchased. One point is one per cent of the loan. |
| Rate with points (%) | The interest rate available after buying those points. |
| Years you plan to keep the loan | How many years you expect to keep the loan before selling or refinancing. |
When to use it
Deciding whether to buy down a rate
The answer depends almost entirely on how long the loan will actually be held.
Comparing lender quotes
A quoted rate means little without knowing what points were paid to get it.
Allocating a fixed cash amount
Points compete with a larger deposit for the same upfront money.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How many points are worth paying for the same rate?
The same half-point rate reduction bought at four different prices.
| Points paid | Breakeven period | Cost of the points |
|---|---|---|
| 0.5 points | 15.2 months (1.3 years) | $2,000.00 |
| 1 points | 30.4 months (2.5 years) | $4,000.00 |
| 2 points | 60.8 months (5.1 years) | $8,000.00 |
| 3 points | 91.2 months (7.6 years) | $12,000.00 |
Questions
When are points worth buying?
When you will keep the loan well past the breakeven period, typically five years or more on a standard trade. If you expect to sell or refinance sooner, the upfront cost is not recovered.
Are points tax deductible?
In some jurisdictions points on a primary residence purchase may be deductible, sometimes in full in the year paid and sometimes spread over the loan. Rules vary and change, so this needs confirmation from a tax professional.
How much rate does a point buy?
Commonly around a quarter of a percentage point, but it varies by lender and market conditions. It is worth asking for the actual schedule rather than assuming, since the trade can be much better or worse than standard.
Are points better than a larger deposit?
It depends on the numbers. A larger deposit reduces the balance and may remove mortgage insurance, which can be worth more than a rate reduction. Both should be compared against the same cash amount.
For refinancing rather than buying down, see the refinance breakeven calculator. For the underlying payment, see the loan payment calculator.