A discount point is an upfront fee, conventionally 1% of the loan amount, paid in exchange for a lower rate for the life of the loan. Whether it’s worth it comes down to one question: how long until the accumulated monthly savings exceed what was paid?
How it works
The cost of the points is compared against the monthly payment saved by the lower rate — the same amortising-payment formula used throughout this site, computed once at the original rate and once at the reduced rate. Dividing the cost by the monthly savings gives the number of months to break even.
Why the plan to keep the loan matters more than the math alone
Points only pay off if the loan is kept past the break-even point. Someone likely to refinance or sell before then effectively loses whatever they spent on points, no matter how favorable the math looks on day one.
How to use this calculator
- Enter the loan amount, rate without points, and loan term.
- Enter how many points are being considered and the rate reduction each one buys.
Frequently asked questions
Is the rate reduction per point always the same?
No — it varies by lender and market conditions; this calculator uses whatever figure is entered, which should come from an actual loan estimate rather than assumed.
What happens to the points paid if I refinance before the break-even point?
That money is effectively lost — the points bought a lower rate on a loan that no longer exists, with the accumulated savings not yet having caught up to the upfront cost.
Are points tax deductible?
Sometimes, depending on the loan type and whether it’s a purchase or refinance — that’s a separate question from the break-even math this calculator shows.
