1. What is Break-Even for Mortgage Points?

The break-even point for mortgage points is when the upfront cost of buying points equals the total savings from the reduced interest rate. This calculator determines how many months it will take to recoup the cost of purchasing mortgage points.

2. How Does the Calculator Work?

The calculator uses the break-even formula:

Where:

• Points Cost — The upfront fee paid to reduce the interest rate (typically 1% of loan amount per point)
• Monthly Savings — The reduction in your monthly mortgage payment after buying points

Explanation: This simple division shows how many months of savings are needed to equal the initial points cost.

3. Importance of Break-Even Calculation

Details: Calculating the break-even point helps determine if buying mortgage points makes financial sense based on how long you plan to keep the mortgage.

4. Using the Calculator

Tips: Enter the total cost of the points you're considering (in USD) and the expected monthly savings from the lower interest rate. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are mortgage points?
A: Mortgage points are fees paid to the lender at closing in exchange for a reduced interest rate. Each point typically costs 1% of the loan amount.

Q2: How do I know my monthly savings from points?
A: Your lender should provide this information when offering different rate/point options. It's the difference between payments with and without points.

Q3: What's a good break-even period?
A: Generally, if you'll keep the loan longer than the break-even period, points may be worthwhile. Under 5-7 years is often considered good.

Q4: Are points tax deductible?
A: Points paid on a primary residence purchase mortgage are usually tax deductible in the year paid, while refinance points must be amortized.

Q5: Should I always buy points if I plan to keep the loan long-term?
A: Not necessarily - consider alternative uses for that money (investments, home improvements) that might provide better returns.