Overview
Mortgage points (also called discount points) let you pay upfront to reduce your interest rate, typically by 0.25% per point. Each point costs 1% of your loan amount. Whether points save you money depends on how long you keep the loan.
The Mortgage Points ROI shows how buying points affects your monthly payment and total interest. The Mortgage Points Break-even Calculator tells you exactly how long you need to keep the loan for the upfront cost to pay off in savings.
Key Differences
**Focus:** The points calculator shows the payment and interest impact. The break-even calculator tells you when the investment pays off.
**Key question:** The points calculator answers "How much will I save per month?" The break-even calculator answers "How many months until those savings exceed what I paid?"
**Decision factor:** If you plan to stay past the break-even point, buying points saves money. If you might sell or refinance before that, skip the points.
**Upfront cost:** One point on a $400,000 loan costs $4,000 upfront but might save $60-70 per month. The break-even calculator tells you that is roughly 57-67 months (about 5 years).
**Tax implications:** Mortgage points are generally tax-deductible in the year you pay them, which can shorten the effective break-even period.
When to Use the Mortgage Points Calculator
- You want to see how 1, 2, or 3 points affect your monthly mortgage payment - You need to compare the total interest paid with and without points over the loan term - You want to evaluate whether to use cash for points or a larger down payment - You are negotiating with a lender and want to understand point pricing - You want to see the monthly savings at different point levels
When to Use the Mortgage Points Break-Even Calculator
- You want to know exactly how many months until points pay for themselves - You are deciding between buying points and keeping cash for other investments - You are unsure how long you will stay in the home and need the break-even timeline - You want to compare the break-even period against your expected ownership length - You are evaluating whether to buy points or invest the same amount in the market
Frequently Asked Questions
Q: When do mortgage points make sense? A: Points make sense when you plan to keep the loan past the break-even point (typically 4-7 years) and you have the cash available without straining your finances.
Q: Can I negotiate points with the lender? A: Yes. Points are part of the negotiation. Some lenders offer better rate reductions per point than others, and you can often choose fractional points.
Q: What are "negative points" or lender credits? A: Instead of paying for a lower rate, you can accept a slightly higher rate and receive a lender credit toward closing costs. This is the opposite of buying points.
Q: Should I buy points or make a larger down payment? A: If your down payment is below 20%, the extra cash is often better used to avoid PMI. If you are already at 20%+, points may be a better use of the extra funds.
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