Mortgage Points Buydown Calculator
Discount points allow you to prepay interest at closing to secure a lower mortgage interest rate for the life of the loan. Each point costs 1% of the loan amount. Whether buying points makes financial sense depends entirely on how long you keep the mortgage. This calculator computes the monthly payment at your quoted rate and at the bought-down rate, finds the monthly savings, and divides the upfront cost by those savings to find the break-even month. If you keep the loan past that point, buying down the rate is profitable.
Mortgage points break-even formula
Point Cost = Loan Amount * Points / 100
M = P * r(1+r)^n / ((1+r)^n - 1)
Monthly Savings = M(no points) - M(with points)
Break-Even Months = Point Cost / Monthly Savings
Where P is the loan amount, r is the monthly rate (annual rate / 12 / 100), and n is total payments. Break-even is calculated in months; divide by 12 for years.
When buying points makes sense
- Buying points pays off only if you hold the mortgage past the break-even month.
- If you plan to sell or refinance within a few years, points are usually not worthwhile.
- Points paid on a home purchase may be immediately tax deductible (IRS Publication 936).
- The lower your bought-down rate, the lower the monthly payment, benefiting you for the entire remaining term once past break-even.
- Ask your lender for the exact rate reduction per point before comparing scenarios.
Mortgage points: frequently asked questions
What is a mortgage discount point?
One discount point equals 1% of the loan amount paid upfront at closing in exchange for a lower interest rate. For example, paying 1 point on a $300,000 loan costs $3,000 and typically reduces the rate by 0.25 percentage points, though the actual rate reduction varies by lender.
How is the break-even period calculated?
Break-even months = upfront cost of points / monthly payment savings. If you pay $3,000 for points and save $60 per month, your break-even is 50 months (about 4 years). If you keep the mortgage longer than that, buying points is financially beneficial.
Are mortgage points tax deductible?
Points paid on a purchase mortgage for your primary residence are generally deductible in the year paid if they meet IRS requirements under Publication 936. Points paid on a refinance may need to be deducted over the life of the loan. Consult a tax professional.
How many points should I buy?
That depends on how long you plan to keep the loan. If you expect to sell or refinance before your break-even point, buying points does not save money. If you plan to stay long-term, more points can generate significant savings.
What is a mortgage rate buydown (2-1 or 3-2-1)?
A temporary buydown reduces the rate for 1 to 3 years before resetting to the note rate. This calculator covers permanent discount points, not temporary buydowns. Temporary buydowns are typically funded by the seller or builder as a concession.
Official sources
- Consumer Financial Protection Bureau: What Are Discount Points?
- IRS Publication 936: Home Mortgage Interest Deduction.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.