How the calculator works
Discount points are an upfront fee you pay the lender for a lower interest rate. One point equals 1% of the loan amount, so one point on a $400,000 loan costs $4,000. Points pay off only if you keep the loan long enough for the lower payment to make back that cost. Lender credits are the reverse: the lender pays part of your closing costs and you take a higher rate. Lenders often show credits as negative points.
- Upfront cost = points × 1% × loan amount (negative for a credit).
- Monthly savings = principal and interest at the no-points rate minus principal and interest at the option's rate.
- Simple break-even = upfront cost ÷ monthly savings. It is the number most lenders quote.
- True break-even also counts the faster principal paydown at the lower rate. If you sell or refinance in month m, the option comes out ahead once (payments saved + lower remaining balance) is larger than the upfront cost. This usually arrives sooner than the simple figure.
- Optional: enter a return you could earn on the cash instead. The calculator then discounts future savings to today's dollars, which pushes break-even later.
There is no standard trade of rate for points. How much one point lowers your rate depends on the lender and the loan type, so this tool uses only the quotes you enter.
Worked example
You are borrowing $400,000 for 30 years. Your lender quotes three ways to price the same loan:
| Option | Upfront | P&I / mo. | Simple BE | True BE | Net after 7 yrs |
|---|---|---|---|---|---|
| 0 points at 6.75% | $0 | $2,594 | – | – | $0 |
| 1 point at 6.50% | $4,000 | $2,528 | 61 mo. | 48 mo. | +$3,039 |
| 2 points at 6.375% | $8,000 | $2,495 | 81 mo. | 64 mo. | +$2,553 |
| 0.5-point credit at 6.875% | −$2,000 | $2,628 | – | credit wins 48 mo. | −$1,525 |
If you expect to keep the loan seven years, one point is the best deal here: it costs less and breaks even sooner than two points. If you might sell or refinance within four years, the lender credit is better, because you pocket $2,000 and pay only about $33 a month more.
Edge cases
- Refinancing early wipes out the benefit. If rates fall and you refinance before break-even, the points are mostly lost. Use the refinance break-even calculator to think about that risk.
- Compare the same day. Rate quotes change daily. Compare Loan Estimates issued on the same day for the same loan amount and lock period.
- Points are in section A of your Loan Estimate, shown as "% of Loan Amount (Points)." See them alongside other fees in the closing cost calculator.
- Temporary buydowns are different. A 2-1 buydown lowers the payment for only the first years. Compare with the 2-1 buydown calculator.
What to do next
Read mortgage points and rate buydowns for the bigger picture, and how rate locks work before you commit to a quote.