In plain text
Points cost = B × (p) ÷ (100) r_new = r - p × d Payment = B × (r) ÷ (1 - (1+r)^(-n))
What are mortgage points?
Mortgage points, also called discount points, are an upfront payment to your lender in return for a lower interest rate on the loan. Each point usually costs a set share of the loan amount, and each point lowers the rate by a set amount. The exact prices come from your lender, so the figures you enter should match the offer you were given.
How do I use it?
Enter the loan amount and the interest rate you would get with no points. Then enter how many points you would buy, how much each point lowers the rate, the length of the loan, and how long you expect to keep it. Compare the lower payment with the cost of the points, and check the break-even time against your plans.
How does the calculation work?
The cost of the points is the loan amount times the share each point stands for. The rate with points is the rate without points minus the points paid multiplied by the reduction per point. Each monthly payment comes from the standard level-payment formula at its rate and term. The monthly saving is the difference between the two payments, and the break-even time is the cost of the points divided by that saving.
The net saving counts every monthly saving over the years you plan to keep the loan, then subtracts the cost of the points. A negative net saving means the points cost more than the lower payments save in that period.
Why does the break-even time matter?
Points pay off only if you keep the loan long enough for the monthly savings to add up to the upfront cost. If you sell or refinance before that point, you lose the money spent on the points. The break-even time gives you a direct number to compare with how long you expect to stay in the home.
What can the result not tell me?
The calculator does not know the rate you will be offered, the price of each point, or whether a lender allows the points to be bought at all. It also leaves out closing costs, taxes, and insurance. The payments shown are principal and interest only.
Treat the result as an estimate. Ask each lender for a written loan estimate with and without points, and compare the figures before you decide.
How do points compare with a higher loan rate?
Some lenders offer the same loan at a lower rate with points and at a higher rate with no points. Paying points is a trade: more cash at closing for less each month. Which trade is better depends on how much cash you have available and how long you plan to keep the loan.
A longer stay makes points more likely to pay off. A short stay, or a plan to refinance soon, makes them less likely to pay off, so the lower payment may not repay the cost.
Are points tax deductible?
Points paid on a home loan may be deductible on your tax return in some cases. The rules depend on the loan, the property, and how you use the money, and they can change. Check the current rules with a tax professional before you count on a deduction.
