Are mortgage discount points worth the cost?

People type this into search every day: mortgage points calculator.

Discount points are cash at closing in exchange for a lower rate. The CFPB’s page on lender credits and discount points defines one point as 1 percent of the loan amount. The same page says the rate cut per point is set by the lender and the market. There is no fixed “0.25 percent per point” rule to type in.

The mortgage points calculator uses the CFPB’s rough break-even from its discount-points spotlight: point cost divided by the monthly principal-and-interest saving.

These are labeled examples. They are not a Loan Estimate, and they are not personalized financial advice.

The three lines

Point cost = points × 1% × loan amount.

Monthly saving = payment at the higher rate − payment at the lower rate.

Break-even months = point cost ÷ monthly saving.

Both payments use the standard mortgage formula for the term you type. Taxes, insurance, and a later refinance stay out. If you sell or refinance before the month count, the points can still be a net cost.

The CFPB’s own scale check is small enough to do by hand. One point on a $100,000 loan is 1% × 100,000 = $1,000. Points do not have to be whole numbers. On that same page, 0.375 points is the fraction in their toolkit table. We will use that table next.

Example 1: the CFPB $180,000 pair

The Home Loan Toolkit borrows $180,000 on a 30-year fixed rate. The zero-point rate in the table is 5%. Paying 0.375 points drops the rate to 4.875%. The booklet says you pay $675 more at closing and about $14 less each month. It also says rates in the market can differ from the table.

Inputs on this calculator:

• loan: $180,000
• rate without points: 5%
• rate with points: 4.875%
• points: 0.375
• term: 30 years

Point cost: 0.375% × 180,000 = $675.00. That matches the booklet.

Payment at 5%: $966.28

Payment at 4.875%: $952.57

Monthly saving: 966.28 − 952.57 = $13.70

Exact break-even: 675 ÷ 13.70 = 49.3 months

The page ceils that to 50 months, the first whole month after you have recovered the $675.

The booklet’s “$14 less each month” is a rounded telling of this gap. 675 ÷ 14 = 48.2 months. The unrounded payment gap is $0.30 smaller, so the break-even moves from 48.2 months to 49.3. Use the payment on your Loan Estimate when you have one. This page uses the amortization formula.

If you keep the loan all 360 months, and you make no extra principal payments, use the unrounded gap of about $13.704 a month. Over 360 months that is $4,933.48. Multiplying the rounded $13.70 by 360 gives $4,932.00, which is $1.48 short of the unrounded total.

Subtract the points: 4,933.48 − 675 = $4,258.48

That net figure is the monthly saving times the full term, minus the cash at closing. It is the right comparison only if you actually keep the loan that long.

Example 2: the calculator defaults

Inputs:

• loan: $336,000
• rate without points: 6.5%
• rate with points: 6.25%
• points: 1
• term: 30 years

Point cost: 1% × 336,000 = $3,360.00

Payment at 6.5%: $2,123.75

Payment at 6.25%: $2,068.81

Monthly saving: $54.94

Exact break-even: 3,360 ÷ 54.94 = 61.2 months

Displayed break-even: 62 months

The $2,068.81 payment is the same default the mortgage payment post walks through. Here it is the with-points side. The without-points side is the higher rate on the same loan and the same 360 months.

Over the full term, the unrounded monthly saving times 360 is $19,777.96 of payment savings before the points. Net of the $3,360, that is $16,417.96, again only if the loan runs all 30 years. The rounded $54.94 times 360 is $19,778.40, forty-four cents higher, because the cents in the payment gap were already rounded.

The yearly totals from the unrounded monthly saving are $659.27, $1,318.53, $1,977.80, $2,637.06, $3,296.33, and $3,955.59. The chart rounds those to the dollar. At 5 years you are still 3,360 − 3,296.33 = $63.67 short. Month 61 is still a few dollars short. Month 62 is past the cost, which is why the headline says 62 months.

Example 3: what if you buy two points

Same $336,000 and 30 years. The no-point rate is now 6.75%, the with-points rate stays 6.25%, and you pay 2 points. I am not assuming two points always buy 0.50 percentage points. These are two rates you would read off one lender’s quote.

Point cost: 2% × 336,000 = $6,720.00

Payment at 6.75%: $2,179.29

Payment at 6.25%: $2,068.81

Monthly saving: $110.48

Exact break-even: 60.8 months

Displayed: 61 months

You paid twice the cash of Example 2, $6,720 instead of $3,360. The monthly saving is about twice as large, $110.48 instead of $54.94, so the month count barely moves. The dollars at stake are larger on both sides. If the second point had bought a smaller rate cut, the month count would have stretched. Example 5 is that case.

Example 4: one point is not always $1,000

The CFPB’s $1,000 figure is 1% of $100,000. Scale the loan and the cash scales with it. Hold the rate pair at 6.5% without points and 6.25% with 1 point, for 30 years.

$100,000 loan:

• cost: $1,000.00
• payment without points: $632.07
• payment with points: $615.72
• monthly saving: $16.35
• exact break-even: 61.2 months, displayed as 62 months

$600,000 loan, same rates and the same 1 point, but the higher rate here is 6.75% and the lower rate is 6.5%. Still a 0.25 percentage point cut. Still one point.

• cost: 1% × 600,000 = $6,000.00
• payment without points: $3,891.59
• payment with points: $3,792.41
• monthly saving: $99.18
• exact break-even: 60.5 months, displayed as 61 months

The month counts are close. The cash is not. Treating every point as $1,000 understates the $600,000 loan by $5,000.

Example 5: a small rate cut on $400,000

Inputs: $400,000, 6.5% without points, 6.375% with points, 1 point, 30 years. The cut is 0.125 percentage points. That is one possible quote. It is not a standard.

Point cost: $4,000.00

Payment at 6.5%: $2,528.27

Payment at 6.375%: $2,495.48

Monthly saving: $32.79

Exact break-even: 122.0 months

Displayed: 122 months

122 months is 10 years and 2 months. Over the full 360 months the payment savings are $11,805.30. Net of the $4,000, that is $7,805.30 if you keep the loan the whole term. You wait a long time to get there.

Example 6: a larger cut on the same $400,000

Change only the discounted rate, from 6.375% to 6%. Same loan, same 1 point, same 30 years. Again, this is a different quote, not a promise that one point buys half a percent.

Point cost: still $4,000.00

Payment at 6%: $2,398.20

Monthly saving: 2,528.27 − 2,398.20 = $130.07

Exact break-even: 30.8 months

Displayed: 31 months

Full-term payment savings: $46,825.20. Net of the points: $42,825.20, if the loan runs 30 years.

Same $4,000. The monthly saving is about four times Example 5, so the break-even is about one fourth as long. The rate pair does the work. The point count does not tell you the answer by itself.

Example 7: a 15-year term

Inputs: $300,000, 6% without points, 5.75% with 1 point, 15 years.

Point cost: $3,000.00

Payment at 6%: $2,531.57

Payment at 5.75%: $2,491.23

Monthly saving: $40.34

Exact break-even: 74.4 months

Displayed: 75 months

The term is 180 months, so 75 months still lands inside the loan. Full-term net, if you stay for all 15 years: payment savings minus $3,000 = $4,261.24.

A 15-year payment is already high, so a quarter-point cut is a smaller share of it. The break-even is longer than the 30-year default in Example 2, even though you paid less cash for the point ($3,000 versus $3,360).

Example 8: the break-even can miss the term

Inputs: $200,000, 6.5% without points, 6.4% with 2 points, 15 years. The rate cut is 0.10 percentage points. Two points is a lot of cash for that cut. I am using it as an edge, not as a typical sheet.

Point cost: $4,000.00

Payment at 6.5%: $1,742.21

Payment at 6.4%: $1,731.24

Monthly saving: $10.98

Exact break-even: 364.4 months

Displayed: 365 months

The term is 180 months. 365 is past the end of the loan. Over those 180 months the payment cuts add up to $1,975.67. You spent $4,000 to get them. You are still behind by 4,000 − 1,975.67 = $2,024.33 when the loan is done.

The calculator’s note on this result says the points do not pay back from monthly savings alone. That is this case.

Example 9: leaving at month 36

Go back to Example 2. Break-even is 61.2 months. Suppose you sell or refinance at month 36.

Savings collected from the unrounded monthly gap, times 36: $1,977.80

Points paid: $3,360.00

Still unrecovered: 3,360 − 1,977.80 = $1,382.20

The points are a net cost on that stay. A longer stay flips the sign. At month 72 the cumulative saving is $3,955.59, which is $595.59 past the $3,360.

This is the same shape as a refinance break-even. The refinance break-even post divides closing costs by the payment cut on a loan you already have. Points are one piece of closing cash on a new loan. The cash to close calculator is where the rest of that check gets added up.

Example 10: a lender credit is the other direction

The toolkit’s third row is 5.125% with −0.375 points on the same $180,000. The booklet says you might receive $675 toward closing costs and pay about $14 more each month.

The calculator’s points field is cash you pay, not cash you receive. If you type the higher rate into “rate with points” and still type 0.375 as points paid, you get this:

• cost of points: $675.00
• payment at 5%: $966.28
• payment at 5.125%: $980.08
• monthly change: −$13.80
• result: No break-even

The lower rate does not reduce the payment, because 5.125% is not lower. A credit has no “months to earn the points back,” because you did not pay them. You pay the higher rate instead. Keep that row out of the points field.

The examples side by side

Type both rates from the same lender’s Loan Estimate into the mortgage points calculator. If the stay you expect is shorter than that month count, the points are still a cost on these examples. A biweekly extra payment is a different lever, with no points check at closing. That math is in does a biweekly mortgage save time and interest?.