Compare paying mortgage points with keeping the higher rate, including break-even timing and your planned sell or refinance date.
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Table of contents
How to use our Mortgage Points Break-Even Calculator
- Enter the Loan amount ($), Loan term (years), Rate without points (%), Rate with points (%), and Points paid (% of loan) from the two loan offers.
- Open Advanced options if you want the planned-time comparison, then enter How long you expect to keep the loan (years), any Extra upfront cost for lower-rate offer ($), and an optional Cash value rate (% per year).
- Use Break-even using payment savings as the quick payback estimate, then check Break-even including loan balance because the lower-rate loan can have a different remaining balance.
- Read Gain or loss at your planned time as the decision number: positive means the points option is ahead, and negative means the no-points option is ahead.
- Sanity-check the output: Rate with points (%) should usually be lower than Rate without points (%), and Monthly payment savings should be positive if the points offer really lowers the principal and interest payment.
Definitions
Mortgage points: Upfront fees paid to get a lower mortgage interest rate. One point is treated as 1% of the loan amount.
Upfront cost of points: The dollar cost of Points paid (% of loan), plus any Extra upfront cost for lower-rate offer ($).
Monthly payment savings: Payment without points minus Payment with points. A positive value means the points offer has the lower principal and interest payment.
Break-even using payment savings: The simple number of months needed for monthly savings to pay back the upfront cost.
Break-even including loan balance: The first month when the points offer is ahead after counting saved payments, remaining loan balance change, upfront cost, and Cash value rate (% per year).
Remaining balance change at your planned time: The no-points remaining balance minus the points-loan remaining balance at the time you expect to keep the loan.
Cash value rate: The optional yearly rate used to estimate what the upfront money could have been worth if you kept or invested it instead.
Gain or loss at your planned time: The signed dollar result at your expected sell, refinance, or payoff time. Positive favors paying points; negative favors not paying points.
Common mistakes and quick fixes
Mistake: Entering the home price in Loan amount ($).
Fix: Use the amount borrowed after the down payment, because Upfront cost of points is based on the loan amount.
Mistake: Putting a total dollar fee into Points paid (% of loan).
Fix: Enter the points as a percent, such as 1 for one point, and put separate added fees in Extra upfront cost for lower-rate offer ($).
Mistake: Leaving Rate with points (%) equal to or higher than Rate without points (%).
Fix: Recheck the offers; if the lower-rate offer does not lower Payment with points, Break-even using payment savings may be N/A.
Mistake: Treating Break-even using payment savings as the whole answer.
Fix: Compare it with Break-even including loan balance and Gain or loss at your planned time, especially if you may sell or refinance early.
Mistake: Entering normal closing costs in Extra upfront cost for lower-rate offer ($).
Fix: Include only the extra cost tied to the lower-rate offer, not costs that are the same in both loans.
Mistake: Using the full Loan term (years) for How long you expect to keep the loan (years) when you expect to refinance sooner.
Fix: Enter the time until you may sell, refinance, or pay off the loan, because Gain or loss at your planned time depends on that date.
Limitations & Key Assumptions / Boundary Conditions
- The calculator compares principal and interest only. It does not include taxes, homeowners insurance, HOA dues, mortgage insurance, escrow changes, or tax deductions.
- It assumes both offers use the same Loan amount ($) and Loan term (years). If the lower-rate offer changes the loan amount or term, compare those offers separately.
- It treats Points paid (% of loan) and Extra upfront cost for lower-rate offer ($) as cash paid now. It does not model rolling points into the loan balance.
- It assumes a fixed-rate mortgage with regular monthly payments and no extra principal payments.
- If How long you expect to keep the loan (years) is longer than Loan term (years), the planned-time comparison is capped at the end of the loan.
- Cash value rate (% per year) is an estimate. A real savings or investment return can change over time and may have taxes or risk.
- Actual loan offers can include lender credits, buydown structures, fees, and APR differences that are not fully captured by interest rate and points alone.
Methodology
Payment and upfront cost
The calculator first converts Loan term (years) to months and converts each yearly percent rate to a monthly decimal rate. It then calculates the fixed principal and interest payment for each offer.
total_months = loan_term_years * 12
monthly_rate = annual_rate_percent / 100 / 12
if monthly_rate = 0, payment = loan_amount / total_months
otherwise, payment = loan_amount * monthly_rate * (1 + monthly_rate)^total_months / ((1 + monthly_rate)^total_months - 1)
Points are converted to dollars, then any extra upfront cost for the lower-rate offer is added. Borrowers usually benefit from discount points only if they keep the mortgage long enough for savings to outweigh the upfront cost [1].
upfront_cost = loan_amount * points_percent / 100 + extra_upfront_cost
Simple break-even
The simple break-even uses only the monthly payment difference. It does not look at the remaining loan balance.
monthly_savings = payment_without_points - payment_with_points
simple_break_even_months = upfront_cost / monthly_savings
If Monthly payment savings is zero or negative, the calculator shows N/A for the payment-savings break-even because the points offer is not paying back the upfront cost through a lower monthly payment.
Balance-aware comparison
For the planned-time result, the calculator computes the remaining balance for each offer after the selected number of monthly payments.
if k >= total_months, balance = 0
if monthly_rate = 0, balance = max(loan_amount - payment * k, 0)
otherwise, balance = loan_amount * (1 + monthly_rate)^k - payment * (((1 + monthly_rate)^k - 1) / monthly_rate)
The balance change is positive when the points loan has less principal left to pay off.
balance_savings_at_keep_time = balance_without_points - balance_with_points
If Cash value rate (% per year) is 0, saved payments are added without interest and the upfront cost stays unchanged. If Cash value rate (% per year) is above 0, the calculator compounds both the monthly savings stream and the upfront cost at that monthly rate.
cash_monthly_rate = cash_value_rate / 100 / 12
if cash_monthly_rate = 0, accumulated_payment_savings = monthly_savings * k
if cash_monthly_rate = 0, future_value_of_upfront_cost = upfront_cost
otherwise, accumulated_payment_savings = monthly_savings * (((1 + cash_monthly_rate)^k - 1) / cash_monthly_rate)
otherwise, future_value_of_upfront_cost = upfront_cost * (1 + cash_monthly_rate)^k
net_at_keep_time = accumulated_payment_savings + balance_savings_at_keep_time - future_value_of_upfront_cost
The adjusted break-even is found by checking each whole month from month 1 through the loan term. The first month with a net value of zero or more is the adjusted break-even month.
adjusted_break_even_months = first whole month k where net_at_month_k >= 0
Mini-example
For a $400,000 loan over 30 years, a 6.50% no-points rate, a 6.25% points rate, 1 point, 7 years expected keep time, no extra upfront cost, and a 0% cash value rate, the estimated Payment without points is $2,528.27 and Payment with points is $2,462.87. Monthly payment savings is $65.40 and Upfront cost of points is $4,000. The simple break-even is about 61.16 months. At 7 years, the lower-rate loan has about $1,530.62 less remaining balance, so Gain or loss at your planned time is about $3,024.49 in favor of the points option.