Suppose paying one point (1% of the loan, $4,000) lowers the rate on a $400,000 loan from 6.75% to 6.50%. The payment falls by $66.12 a month, so the point pays for itself after about 5 yrs 1 mo. If you sell or refinance sooner, you lose money on it.
Break-even
Break-even months equal the cost of the point divided by the monthly savings: $4,000 ÷ $66.12 = 60.5 months.
Net result by how long you keep the loan
| Years kept | Payment savings | Savings minus cost of point |
|---|---|---|
| 3 years | $2,380 | -$1,620 |
| 5 years | $3,967 | -$33 |
| 7 years | $5,554 | $1,554 |
| 10 years | $7,934 | $3,934 |
| 15 years | $11,902 | $7,902 |
| 30 years | $23,803 | $19,803 |
The table ignores interest you could have earned on the $4,000 instead. Include it if you would otherwise invest the cash.
When points are more likely to pay off
- You plan to stay in the home and keep the loan well past the break-even date.
- Rates are unlikely to fall enough to make you refinance soon.
When they are less likely to
- You may move or refinance within a few years.
- The cash is needed for the down payment or an emergency fund.
What we assumed
- One point lowers the rate by 0.25%. That ratio varies by lender and market; ask for the actual rate sheet.
- 30-year fixed on $400,000, principal and interest only.
Related calculators: Mortgage Calculator, Home Affordability Calculator.
Questions people ask
Is a point the same as a closing cost?
No. A discount point is prepaid interest that lowers your rate. Other closing costs (title, appraisal, lender fees) are separate.
Estimates for general education, not financial, tax or legal advice. Real results depend on your lender, employer, tax situation and location. See the disclaimer.