Points cost money upfront to buy a lower rate. Find the month the savings catch up.
A mortgage discount points calculator shows whether paying points upfront to lower your rate actually saves money, by finding the break-even month where the accumulated monthly savings repay the cost of the points.
One discount point costs 1% of the loan amount and typically lowers the rate by a modest fraction of a percent. You're pre-paying interest in exchange for a smaller payment for as long as you hold the loan. Whether that trade pays off comes down to one number: how long until the monthly savings add up to the upfront cost.
If you keep the loan past the break-even month, points save you money; if you sell or refinance before then, you've lost the upfront cost. Buyers who plan to stay a long time and won't refinance benefit most. Because points are pre-paid mortgage interest, they may also be tax-deductible, worth checking with a tax advisor.
They're worth it if you keep the loan past the break-even point, where the monthly savings repay the upfront cost. The longer you hold the loan, the more you save.
One point costs 1% of the loan and usually lowers the rate by a fraction of a percent. The exact savings depend on the lender's rate sheet.
The month when accumulated monthly savings equal what you paid for the points. Sell or refinance before it and points cost you money.
See the exact formula and a worked example on our methodology page.