# Mortgage Points Calculator

Use the **mortgage points calculator** (or *mortgage discount points calculator*) to learn **how much** you could **save on interest** when **buying points for a mortgage**. In addition, you can check how long you need to wait to regain the mortgage points cost (the **mortgage break-even point**), so you can also apply our tool as a **mortgage points break-even calculator**.

In the following, you can read about:

- The pros and cons of buying points on a mortgage;
- How do mortgage points work;
- How much is a mortgage point; and
- How to calculate mortgage points.

If you would like to analyze the break-even of a refinance, check our refinance break-even calculator.

## How do mortgage points work? Pros and cons of buying mortgage points

Typically, when the general level of **prices is increasing** in the overall economy, central banks **increase policy rates** to curb inflation. One important channel of monetary policy operation is the bank lending channel, where **rising policy rates increase interest rates on loans**. In such periods, borrowers seek for the lowest possible interest rate on new loans, especially mortgages, where **minor differences in rates can considerably affect payments and interest charges** over a long stretch of time (check our mortgage comparison calculator for a demonstration).

One option to lower the interest rate is to **buy points on a mortgage**. Paying points on a mortgage means paying **additional upfront fees** to your mortgage lender (or increasing the loan amount), called *discount points*, to get a lower interest rate and monthly payment.

While the big advantage of buying points on a mortgage is that you obtain a lower rate, regardless of your credit score, there are several aspects to consider before paying for mortgage loan points.

Considering the **pros** and circumstances when buying points on a mortgage can be beneficial:

- When your
**income does not qualify you for a mortgage**, you may be able to qualify with a reduced interest rate and payment. - If you have
**cash at hand**, or if you can convince the seller to pay for the mortgage discount points. - When you
**plan to live in the same house for a long time**without refinancing your mortgage (at least until you reach the break-even. - If you expect rising mortgage rates.

However, there are some **cons** and situations where it is better not to buy points on a mortgage:

- In case your
**down payment is less than 20 percent**of the mortgage amount, it might be better to allocate your money towards increasing the down payment percentage to avoid possible charges of private mortgage insurance (PMI). - If you have
**other high-interest debts**(for example, credit card), you may be better off if you repay it first. - It's always a good idea to consider the
**opportunity cost**of the money you would spend on the mortgage points (i.e., potential investment or savings).

To sum up, it's always a good idea to check whether the money you devote to lowering mortgage rates brings higher utility in other places. Still, if you plan to stay for a long time in the purchased home, buying mortgage points might be a smart choice.

## How to calculate mortgage points. The mortgage points calculator

To make the tool work, you need to provide the following parameters:

**Mortgage setup**

*Original loan amount*- The mortgage amount;*Mortgage term*- The loan term;*Initial interest rate*- Yearly rate of interest, or APR;*Compounding frequency*- Available in the`advanced mode`

; and*Due date*- The date when the first monthly payment is due.

After setting the mortgage configuration, you can choose two options for comparing different scenarios of mortgage points.

**Option I. and Option II.**

*Mortgage points*- Upfront payment as a percentage of the loan amount;*Cost of mortgage points*- The amount you need to pay for the mortgage points;*New interest rate*- The discounted mortgage rate;*Type of payment*(`advanced mode`

) - By default, the payment is assumed to be*upfront*, but you may choose to*roll it into the loan*as well; and*Discount percentage*(`advanced mode`

) - You may manually set the percentage discount you gain with one mortgage point (0.25% by default).

**Results**

After setting all parameters, you will immediately see the results in the summary table, which you can use to compare the two different mortgage point options. The information provided includes:

*Principal*;*Monthly payment*;*Monthly savings*;*Mortgage rate*;*Break even point*;*Total interest*; and*Total payments*.

**Balances and schedules**

You can also follow the progress of mortgage balances in a *dynamic chart* and *amortization table*.

## FAQ

### Are mortgage points tax deductible?

Yes. **Mortgage points are considered prepaid interest** and may be **deductible as home mortgage interest**. To do so, you need to claim the itemized deductions on *Schedule A of Form 1040*.

### How much do mortgage points cost?

**Each point** you buy **costs 1 percent of the mortgage** amount. For example, you can quickly compute the cost of a mortgage point on a `$200,000`

mortgage if you divide `200,000`

by `100`

, which is `$2,000`

.

### How many points can you buy on a mortgage?

The upper limit of mortgage points depends on the mortgage lender you borrow from. While there is no official limit on how many mortgage points you can buy, **one-point and three-point programs are the most common**.

### How much can I save by buying one mortgage point on a $300,000 mortgage?

To find how much you can save by buying mortgage points:

**Check**the rate of your`$300,000`

mortgage, let's assume it is`3.25%`

,**Decide**the new interest rate you'd like, for example,`3%`

,- In that way, you will
**lower the monthly payment by**(from`$40`

`$1,264.81`

to`$1,224.72`

) - In the end, you would
**save**(taking into account the upfront cost of`$11,432`

on interest`$3,000`

to buy the points)

## Mortgage points calculator disclaimer

You should consider the **mortgage points break even calculator** as a model for financial approximation. All payment figures, balances, and interest figures are estimates based on the data you provided in the specifications that are, despite our best effort, not exhaustive.

For this reason, we created the calculator for instructional purposes only. Still, if you experience a relevant drawback or encounter any inaccuracy, we are always pleased to receive useful feedback and advice.

Option I. | Option II. | Difference | |

Principal | $250,000.00 | $250,000.00 | $0.00 |

Monthly payment | $1,054.01 | $987.80 | -$66.21 |

Monthly savings | $34.01 | $100.21 | $66.21 |

Mortgage rate | 3% | 2.5% | -0.5% |

Break even | Nov. 14, 2030 (74 months) | Dec. 14, 2030 (75 months) | 1 month |

Total interest | $129,443.63 | $105,608.81 | -$23,834.82 |

Total payments | $381,943.63 | $363,108.81 | -$18,834.82 |