Calculator
Example data table
| Loan amount | Base rate | Rate reduction | Points | Term | Holding |
|---|---|---|---|---|---|
| USD 300,000 | 7.000% | 0.250% | 1.000% | 30 years | 84 months |
| USD 450,000 | 6.625% | 0.375% | 1.500% | 30 years | 60 months |
| USD 200,000 | 5.750% | 0.125% | 0.750% | 15 years | 48 months |
Formula used
- Points cost = Loan Amount × (Points % ÷ 100)
- Monthly payment = P × r(1+r)n ÷ ((1+r)n − 1), where r = APR ÷ 12, n = term months
- Monthly savings = Payment(no points) − Payment(with points)
- Net upfront cost = (Closing(with points)+Points) − Closing(no points) − Tax savings (optional)
- Simple break-even = Net upfront cost ÷ Monthly savings
How to use this calculator
- Enter your loan amount, base interest rate, and loan term.
- Enter the points percentage and the expected rate reduction.
- Add closing costs for each option to reflect fee differences.
- If applicable, enable the tax benefit and add your marginal tax rate.
- Enter how long you expect to keep the loan, then calculate.
- Compare break-even months, savings at your holding period, and exports.
Notes and disclaimers
- This tool estimates payments and break-even based on your inputs.
- Escrow, insurance, taxes, and PMI are not included in the payment difference.
- Tax treatment of points can vary by jurisdiction and loan type.
- Rates, fees, and lender credits may change the true break-even point.
Rate reduction versus upfront cost
Discount points are prepaid interest that lower the note rate. A common quote is 1.00 point for a 0.25% rate drop, but the trade varies by lender, credit, and market. This calculator models both scenarios using the same loan amount and term, then isolates the monthly payment gap created by the rate change.
Break-even month as a cash decision
Break-even occurs when cumulative monthly savings equal the net upfront cost of points and any closing-cost differences. The tool shows a simple estimate (net upfront divided by monthly savings) and a schedule-based estimate that tracks month-by-month cashflow. When savings turn positive, the points purchase has paid for itself.
Holding period and opportunity cost
If you expect to sell, refinance, or pay off early, the holding period matters more than lifetime interest. For example, a 60‑month horizon may show meaningful savings even if the mortgage runs 360 months. The results include savings and interest saved at your holding month, plus the balance difference between scenarios to reflect faster principal reduction.
Taxes, fees, and realistic inputs
Points may be deductible in some situations, but rules vary by jurisdiction, loan type, and use of the property. The optional tax toggle estimates after‑tax points cost using your marginal rate, turning “net upfront” into a more comparable figure. Add lender credits, origination, appraisal, and other fees into the closing‑cost fields to capture the real tradeoff.
How to interpret the chart
The Plotly chart plots cumulative savings from month one, starting negative by the net upfront amount. A steadily rising line that crosses zero before your expected holding period suggests points are worthwhile. If the line stays below zero, you may prefer the higher rate and lower upfront cost, preserving liquidity for other goals, and reducing regret if plans change soon.
FAQs
1) What are discount points?
Discount points are upfront fees paid at closing to reduce your interest rate. One point equals 1% of the loan amount. They can lower the monthly payment, but you must keep the loan long enough to recover the cost.
2) How does this calculator find break-even?
It computes payments for the base rate and the reduced rate, then compares monthly savings against the net upfront cost. It reports a simple break-even estimate and a schedule-based month where cumulative cash savings first becomes non‑negative.
3) Do points always reduce total interest?
Usually yes when the rate is lower and the loan remains outstanding. However, if you refinance or sell early, you may not stay long enough to realize the interest savings. Fees and credits can also change the result.
4) Should I include escrow, insurance, or taxes in payments?
For break-even, compare only items that differ between scenarios. Escrow and property taxes are often similar, so they are excluded here. If one option changes mortgage insurance or fees, include those differences in closing costs or inputs.
5) How should I choose the holding period?
Use the month you expect to refinance, move, or pay off. If unsure, test multiple horizons such as 36, 60, and 84 months. Choose points only when the chart crosses zero comfortably before your likely exit.
6) Is the tax benefit option accurate for my situation?
It is a simplified estimate using your marginal tax rate and the points amount. Actual deductibility depends on local rules, loan purpose, and documentation. Treat it as a sensitivity toggle, and confirm details with a qualified professional.