Calculator Input
Example Data Table
| Loan Amount | Original Rate | Bought Rate | Term | Points Needed | Net Upfront Cost | Monthly Savings | Break-Even |
|---|---|---|---|---|---|---|---|
| $250,000 | 7.00% | 6.50% | 30 years | 2.000 | $5,000.00 | $79.92 | 62.6 months |
| $350,000 | 7.25% | 6.50% | 30 years | 3.000 | $10,500.00 | $174.17 | 60.3 months |
| $500,000 | 6.75% | 6.25% | 15 years | 2.000 | $10,000.00 | $160.53 | 62.3 months |
Formula Used
1) Monthly mortgage payment
M = P × [r(1+r)n] / [(1+r)n − 1]
Where:
M = monthly payment
P = loan amount
r = monthly interest rate
n = total monthly payments
2) Rate reduction
Rate Reduction = Original Rate − Bought-Down Rate
3) Discount points required
Discount Points = (Rate Reduction ÷ Rate Step) × Points Per Step
4) Total point cost
Total Point Cost = Discount Points × (Loan Amount × Cost Per Point %)
5) Net upfront cost
Net Upfront Cost = Total Point Cost + Other Fees − Seller Credit
6) Monthly savings
Monthly Savings = Original Payment − Bought-Down Payment
7) Break-even months
Break-Even Months = Net Upfront Cost ÷ Monthly Savings
8) Hold-period benefit
Net Hold Benefit = (Monthly Savings × Hold Months) − Net Upfront Cost
How to Use This Calculator
- Enter the mortgage loan amount.
- Provide the original quoted annual interest rate.
- Enter the lower rate after paying discount points.
- Choose the loan term in years.
- Set the cost per point percentage.
- Enter how many points reduce each pricing step.
- Add any other lender fees.
- Subtract any seller credit reducing your cash need.
- Enter how long you expect to keep the loan.
- Click the calculate button to compare cost and savings.
FAQs
1) What does buying down an interest rate mean?
It means paying discount points upfront to secure a lower mortgage rate. The lower rate reduces monthly payments and total interest, but increases your closing cash requirement.
2) What is a discount point?
A discount point is a prepaid financing charge. One point often equals one percent of the loan amount, though lender pricing and rate reductions can vary.
3) Why is break-even important?
Break-even shows how many months of payment savings are needed to recover the upfront buydown cost. It helps decide whether the lower rate fits your expected holding period.
4) Is the cheapest payment always the best choice?
Not always. A lower payment may require too much cash upfront. If you expect to refinance or sell early, the upfront cost may not be recovered.
5) Can seller credits offset buydown costs?
Yes. Seller credits can reduce your out-of-pocket closing amount. This calculator subtracts seller credits from gross buydown costs to estimate your net upfront expense.
6) Does a lower rate also reduce lifetime interest?
Yes. When the loan is kept for the full term, a lower interest rate generally reduces total interest paid. The calculator compares full-life interest under both rates.
7) What if lender pricing is not one point per quarter-percent?
You can change the pricing step and points-per-step fields. That makes the tool flexible for lenders using custom rate ladders or nonstandard pricing grids.
8) Should I use this result as lending advice?
No. This tool is educational. Actual pricing, underwriting, taxes, fees, credits, and qualification rules vary. Confirm final numbers with your lender before committing.