What this calculator does
Discount points are an upfront charge at closing that buys a lower interest rate. The calculator takes a loan amount, the zero-point rate, the number of points, how much each point lowers the rate, and how many years you expect to keep the loan. It works out the cost of the points, the new rate, the monthly principal and interest saved, the number of months until those savings repay the cost, and the net result over your horizon. A fourth figure shows what the point cost would grow to at an assumed 8.5% annual return if it were invested instead, as a reference for the cash tied up at closing.
The Consumer Financial Protection Bureau defines one point as 1% of the loan amount and notes that points do not have to be round numbers: 0.5, 1.375 or 0.125 points are all possible. It also says the rate reduction per point "depends on the specific lender, the kind of loan, and the overall mortgage market", which is why the rate drop per point is an input here rather than a fixed rule. Points appear on page 2, Section A, of the Loan Estimate and the Closing Disclosure.
How the math works
Point cost = loan amount × points ÷ 100. New rate = zero-point rate − points × rate drop per point. Both rates are turned into a monthly principal and interest payment on a 30-year fixed loan with the standard formula \( M = P \frac{r(1+r)^n}{(1+r)^n - 1} \), where \( P \) is the loan amount, \( r \) the monthly rate and \( n \) = 360 payments. The monthly saving is the difference between the two payments, and breakeven is the point cost divided by the monthly saving. The net over your horizon is the monthly saving times the months you keep the loan, minus the point cost.
Three simplifications apply. The term is fixed at 30 years. The comparison uses payment savings only; the lower rate also pays principal down slightly faster, so the loan balance at any given month is a little lower with points, which the calculator does not count. And the invested-cost figure grows the point cost alone at 8.5%, an assumption rather than a forecast, and does not invest the monthly savings, so it is not directly comparable with the net-over-horizon figure.
Worked example
The default inputs are a $450,000 loan at 6.75% with no points, and one point that lowers the rate by 0.25% to 6.50%. The point costs $4,500. The monthly principal and interest payment falls from $2,918.69 to $2,844.31, a saving of about $74.39. Dividing $4,500 by $74.39 gives 60.5 months, so the cost is recovered in month 61, just over five years in.
Kept for seven years (84 months), the loan saves $74.39 × 84 = $6,248 in payments, $1,748 more than the point cost. Kept for three years, it saves $2,678 and leaves $1,822 of the cost unrecovered; at five years it is still $37 short. The same $4,500 grown at the assumed 8.5% for seven years would gain $3,466.
What sets the breakeven: rate drop per point, not loan size
Because both the cost of points and the payment saving scale with the loan amount, the loan size barely matters. With one point at 0.25% off a 6.75% rate, a $300,000, $450,000 or $750,000 loan all break even at 60.5 months. What moves the result is how much rate each point buys. Each cell below comes from the page's own calculation on a $450,000 loan at 6.75%, showing breakeven months and the monthly saving.
| Points bought | 0.125% per point | 0.25% per point | 0.375% per point |
|---|---|---|---|
| 0.5 ($2,250) | 120.5 mo | $18.67 | 60.3 mo | $37.29 | 40.3 mo | $55.86 |
| 1.0 ($4,500) | 120.7 mo | $37.29 | 60.5 mo | $74.39 | 40.4 mo | $111.28 |
| 2.0 ($9,000) | 121.0 mo | $74.39 | 60.8 mo | $147.96 | 40.8 mo | $220.71 |
Buying more points at the same price per point leaves the breakeven almost unchanged; it scales the cost and the saving together. Halving the rate drop per point doubles the breakeven. The starting rate has a smaller effect: one point at 0.25% breaks even in 64.2 months from 5.5%, 61.2 months from 6.5% and 58.7 months from 7.5%. The practical input to get from a lender is therefore the rate with and without points for the same loan, which is the comparison the CFPB suggests asking a loan officer for.
Net result by how long you keep the loan
With the default inputs, the page's calculation gives the following results. A loan can end early through a sale or a refinance, so the relevant horizon is the shorter of the two.
| Years kept | Payment savings minus $4,500 cost | $4,500 at assumed 8.5%: growth |
|---|---|---|
| 3 | −$1,822 | $1,248 |
| 5 | −$37 | $2,266 |
| 7 | +$1,748 | $3,466 |
| 10 | +$4,426 | $5,674 |
| 15 | +$8,889 | $10,799 |
The two columns answer different questions. The first is the cash result of the points themselves. The second is what the same cash could have earned elsewhere at an assumed return, before tax, and ignores that the monthly savings could also be invested.
How the IRS treats points
IRS Tax Topic 504 describes points as a form of prepaid interest. They count only if you itemize deductions on Schedule A, and for 2026 the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly (IR-2025-103), so many borrowers receive no tax benefit from points at all. When they do itemize, the timing depends on the loan:
| Situation | When points are deductible | Source |
|---|---|---|
| Loan to buy or build your main home, all tests met | In full in the year paid | Topic 504; Pub 936 |
| Loan to substantially improve your main home, tests met | In full in the year paid | Pub 936 |
| Refinance | Over the life of the loan; the part of the proceeds used to substantially improve the main home can qualify for the year paid | Pub 936 |
| Second home | Over the life of the loan | Pub 936 |
| Points paid by the seller | Treated as paid by the buyer, who reduces the home's basis by the same amount | Topic 504; Pub 936 |
| Loan ends early with points still being spread | Remaining balance deductible in the year the loan ends, unless refinanced with the same lender, in which case it is spread over the new loan | Pub 936 |
The tests for deducting in the year paid include that the loan is secured by your main home, that paying points is an established practice in the area and the amount is not more than is generally charged there, that the points are figured as a percentage of the principal and shown clearly as points on the settlement statement, and that you provide funds at or before closing at least equal to the points; money borrowed from the lender or broker does not count. Fees charged in place of appraisal, inspection, title or attorney fees are not deductible as interest. Mortgage interest, including points, is deductible only on the first $750,000 of acquisition debt ($375,000 if married filing separately) for debt taken on after December 15, 2017, per IRS Publication 936. The calculator does not model any tax effect.
Seller-paid points and the limits on them
A seller can pay for the buyer's points, but on a conventional loan sold to Fannie Mae the total the seller and other interested parties contribute is capped. The Fannie Mae Selling Guide (B3-4.1-02) sets these maximum financing concessions, measured against the lower of the sales price or appraised value, not the loan amount:
| Occupancy | Loan-to-value ratio | Maximum interested-party contribution |
|---|---|---|
| Principal residence or second home | Greater than 90% | 3% |
| Principal residence or second home | 75.01% to 90% | 6% |
| Principal residence or second home | 75% or less | 9% |
| Investment property | All | 2% |
Contributions must also not exceed the borrower's actual closing costs; any excess is treated as a sales concession and deducted from the price used for the loan-to-value ratio. Common and customary fees a seller pays under local custom do not count toward the cap. For the calculator, seller-paid points lower your own cash cost, so enter only the points you pay; for tax purposes Publication 936 still treats seller-paid points as paid by you.
Frequently Asked Questions
Are mortgage discount points tax deductible?
Only if you itemize deductions on Schedule A. Points on a loan to buy or build your main home can be deducted in full in the year paid if the IRS tests in Publication 936 are met; points on a refinance or a second-home loan are generally deducted over the life of the loan. With a 2026 standard deduction of $16,100 single and $32,200 married filing jointly, many borrowers do not itemize and get no deduction.
How is a temporary 2-1 buydown different from permanent points?
Permanent points lower the note rate for the life of the loan. A temporary buydown leaves the note rate unchanged and uses a funded account to lower the payment for the first years. Under the Fannie Mae Selling Guide (B2-1.4-04), the buydown period can be no more than 3 years, the rate paid by the borrower can rise by no more than 1% a year, and the borrower is qualified at the note rate. If the loan is paid off early, remaining buydown funds are credited to the payoff amount or returned to the borrower or lender as the buydown agreement specifies.
Can I pay points with money borrowed from the lender?
For a deduction in the year paid, IRS Topic 504 requires that you provide funds at or before closing at least equal to the points, and funds borrowed from the lender or mortgage broker do not count. Points financed into a refinance are also generally deducted over the loan term. For the calculator, financing the points adds their cost to the loan balance, which this tool does not model.
Can the seller pay for my points?
Yes, within limits. On loans sold to Fannie Mae, seller and other interested-party contributions are capped at 3%, 6% or 9% of the lower of price or appraised value depending on the loan-to-value ratio (2% for investment properties), and cannot exceed your closing costs. The IRS treats seller-paid points as paid by the buyer, who reduces the home's basis by that amount.
Why does my breakeven barely change when I buy more points?
Because cost and saving both scale with the number of points. At 0.25% per point on a $450,000 loan at 6.75%, one point breaks even in 60.5 months and two points in 60.8 months. Breakeven depends mainly on how much rate each point buys: at 0.125% per point it roughly doubles to about 121 months.
Sources
- CFPB, How should I use lender credits and points (also called discount points)?
- IRS Tax Topic 504, Home mortgage points
- IRS Publication 936 (2025), Home Mortgage Interest Deduction
- IRS IR-2025-103, 2026 standard deduction
- Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions
- Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns
Disclaimer: This tool is for educational and scenario-analysis purposes only and does not constitute financial, tax, legal, or investment advice. Mortgage rates, point pricing, and tax regulations are subject to change. Always consult a licensed CPA, financial advisor, or mortgage broker regarding your specific circumstances.
Built and verified by The Breakeven Math — last reviewed September 18, 2026.
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