Mortgage Calculator With Points Comparison

Mortgage Payment Formula with Points:

\[ PMT = (PV - \text{Points Cost}) \times \frac{r}{(1 - (1 + r)^{-n})} \]

Loan Amount (PV):

USD

Points Cost:

USD

Interest Rate (r):

decimal

Number of Periods (n):

months

Monthly Payment With Points:

Monthly Payment Without Points:

Monthly Savings:

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1. What is Mortgage Points Comparison?

Mortgage points (also called discount points) are fees paid to the lender at closing in exchange for a reduced interest rate. This calculator helps compare the monthly payments with and without paying points to determine if the upfront cost is worth the long-term savings.

2. How Does the Calculator Work?

The calculator uses the standard mortgage payment formula adjusted for points:

\[ PMT = (PV - \text{Points Cost}) \times \frac{r}{(1 - (1 + r)^{-n})} \]

Where:

\( PV \) — Loan principal amount (USD)
Points Cost — Upfront fee paid for points (USD)
\( r \) — Monthly interest rate (decimal)
\( n \) — Total number of payments (months)

Explanation: The calculator first subtracts the points cost from the principal, then calculates the monthly payment based on the reduced loan amount.

3. Importance of Points Comparison

Details: Comparing mortgage options with and without points helps borrowers understand the break-even point and determine if paying points makes financial sense for their situation.

4. Using the Calculator

Tips: Enter the total loan amount, points cost (typically 1% of loan amount per point), interest rate (as decimal), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are mortgage points?
A: Mortgage points are upfront fees (1% of loan amount per point) paid to reduce the interest rate, typically by 0.25% per point.

Q2: How do I know if points are worth it?
A: Calculate your break-even point (points cost divided by monthly savings) to see how many months you need to keep the loan to recoup the cost.

Q3: Are points tax deductible?
A: In many cases, points paid on a primary residence mortgage are tax deductible, either fully in the year paid or amortized over the loan term.

Q4: Should I pay points if I plan to move soon?
A: Generally no, unless the monthly savings are substantial enough to offset the upfront cost before you plan to move.

Q5: Can I negotiate points with my lender?
A: Yes, points are often negotiable. Compare offers from multiple lenders to find the best combination of points and interest rate.