Mortgage Points Calculator

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Table of contents

• How to use
• Common mistakes
• Definitions
• Methodology
• Limitations & assumptions
• Sources

Discount points: Upfront lender charges connected to a lower mortgage interest rate. They are also called mortgage points. [2]

Note rate: The annual interest rate used to calculate principal-and-interest payments. It differs from APR.

APR: Annual percentage rate. This broader borrowing-cost measure may include certain fees, so it is not the rate used in this calculator's payment formula.

Principal and interest: The part of a monthly mortgage payment that repays the loan balance and interest. Property taxes, insurance, and mortgage insurance are separate costs.

Payment break-even time: The number of months of lower principal-and-interest payments needed to equal the point charge.

Loan Estimate: A standardized lender document that shows loan terms, costs, and estimated cash to close. [1]

Mistake: Entering the home price instead of the loan amount.
Fix: Use the mortgage principal shown on the lender quote or Loan Estimate.

Mistake: Entering APR instead of the quoted interest rate.
Fix: Enter each loan's annual note rate. APR can include costs beyond the rate used for the monthly payment.

Mistake: Guessing how much a point lowers the rate.
Fix: Enter the lender's actual no-points rate and with-points rate. The rate reduction depends on the quote.

Mistake: Counting financed points as cash due at closing.
Fix: Choose "Added to the loan balance" if the lender finances the charge. This raises the starting balance and changes the with-points payment.

Mistake: Ignoring a likely sale or refinance.
Fix: Enter the expected years before the current loan ends, then compare that time with the payment break-even time.

• The calculation compares fixed monthly principal-and-interest payments only. It excludes property taxes, homeowners insurance, mortgage insurance, escrow payments, and other closing costs.
• Break-even compares the point charge with monthly payment savings. It does not compare remaining loan balances, investment returns, tax effects, or the time value of money.
• The quotes need the same loan term and otherwise comparable loan terms. A lower rate on a different term is not a like-for-like points comparison.
• A sale, refinance, payoff, missed payment, loan modification, or changed payment plan can alter the actual outcome.
• Financed points are added to the starting balance in this calculation. Confirm the lender's actual treatment and any limit on financing closing costs.

Payment calculation

The calculator compares two fixed-rate principal-and-interest payments using the same loan term. It uses the two lender-quoted note rates instead of assuming that a point always produces a certain rate reduction. A fixed monthly mortgage payment is based on the starting balance, monthly interest rate, and number of monthly payments. [3]

n = loan term in years * 12

r = annual note rate / 1200

monthly payment = balance * r / (1 - (1 + r)^(-n))

In these formulas, n is the number of monthly payments and r is the monthly interest rate written as a decimal. If the annual note rate is 0%, the monthly payment is the balance divided by n. For cash-paid points, the with-points balance is the original loan amount. For financed points, the point charge is added once to that balance.

Break-even calculation

monthly savings = no-points payment - with-points payment

break-even months = point charge / monthly savings

A positive monthly savings means the with-points quote has the lower monthly principal-and-interest payment. If that payment is equal to or higher than the no-points payment, there is no payment break-even.

Worked mini-example

For a $12,000 loan with a 1-year term, a 12% no-points rate, a 0% with-points rate, and a $120 cash-paid point charge, the no-points payment is about $1,066.19 per month. The with-points payment is $1,000.00, so monthly savings are about $66.19. Dividing $120 by $66.19 gives a payment break-even time of about 1.8 months.

Expected loan period

When you enter an expected time before sale, refinance, or payoff, the calculator also calculates the payment cash-flow difference for that period.

payment cash-flow savings = monthly savings * holding years * 12 - cash due at closing