1. What Are Mortgage Points?

Mortgage points, also called discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. Each point typically costs 1% of your loan amount and lowers your interest rate by 0.25%.

2. How Points Are Calculated

The calculation is simple:

Where:

• Loan Amount — The total mortgage amount in USD
• Points Percentage — The number of points you're purchasing (typically 0-3)

Key Fact: Each point equals 1% of the loan amount. For a $300,000 loan, one point would cost $3,000.

3. When to Buy Points

Consider buying points when:

• You plan to stay in the home long enough to break even
• You have extra cash at closing
• You want to lower your monthly payment

4. Using This Calculator

Instructions: Enter your total loan amount and the number of points you're considering purchasing. The calculator will show both the total cost and the cost per individual point.

5. Frequently Asked Questions (FAQ)

Q1: Are mortgage points tax deductible?
A: Points paid on a mortgage for your primary residence may be deductible in the year paid or amortized over the life of the loan. Consult a tax professional.

Q2: How much does one point lower my interest rate?
A: Typically 0.25%, but this varies by lender and market conditions.

Q3: Can I buy fractional points?
A: Yes, you can purchase fractions of points (e.g., 0.5 points or 1.25 points).

Q4: What's the difference between discount points and origination points?
A: Discount points lower your interest rate, while origination points are fees charged by the lender for making the loan.

Q5: How do I know if buying points makes financial sense?
A: Calculate your break-even point (cost of points ÷ monthly savings) to see how long it will take to recoup the cost.