1. What Are Mortgage Points?

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

2. How Does the Calculator Work?

The calculator uses the break even formula:

Where:

• Points Cost — Total amount paid for mortgage points
• Monthly Savings — Reduction in monthly mortgage payment

Explanation: The break-even point tells you how many months it will take to recoup the cost of buying points through your monthly savings.

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 stay in the home.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: How much does one mortgage point cost?
A: Typically 1% of your loan amount. For a $300,000 loan, one point would cost $3,000.

Q2: What's a good break-even period for mortgage points?
A: Generally, if you'll stay in the home longer than the break-even period, points may be worthwhile. Less than 5 years is often considered good.

Q3: Do points always lower the interest rate by 0.25%?
A: While 0.25% is typical, the exact reduction varies by lender and market conditions.

Q4: Can points be financed into the mortgage?
A: Yes, but this increases your loan amount and total interest paid over time.

Q5: Are mortgage points tax deductible?
A: Points paid on a primary residence purchase may be deductible in the year paid, while refinance points must typically be amortized.