1. What Are Mortgage Points?

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

2. How Does the Calculator Work?

The calculator uses the break-even formula:

Where:

• \( Points\ Cost \) — Loan Amount × (Points Purchased / 100)
• \( Monthly\ Savings \) — Payment without points minus payment with points

Explanation: The calculator compares your monthly mortgage payments with and without points to determine how long it will take to recoup the upfront cost.

3. Importance of Break-Even Analysis

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

4. Using the Calculator

Tips: Enter your loan amount, points percentage, original and reduced interest rates, and loan term. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Are mortgage points worth it?
A: Points are worth considering if you plan to stay in the home beyond the break-even point and have the cash available at closing.

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

Q3: Can points be financed?
A: Yes, but this increases your loan amount and reduces the benefit since you'll pay interest on the points.

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

Q5: What's a good break-even period?
A: Generally, less than 5-7 years makes points attractive if you'll keep the loan that long.