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What Are Mortgage Points?
Mortgage points are prepaid interest paid at closing to lower the loan interest rate. One point typically costs one percent of the loan amount. Buying points reduces the monthly payment and total interest over time. The benefit depends on rate reduction loan term expected stay length and upfront budget available.
Discount Points Versus Origination Points
Discount points permanently reduce the interest rate charged on your mortgage. Origination points are lender fees for processing and do not lower the rate. This calculator focuses on discount points because they change payment savings and break even timing. Confirm your quote to ensure points are discount and not origination.
How Break Even Works
Break even occurs when cumulative monthly savings from the lower rate equal the upfront cost of points. We divide total points cost by the monthly payment difference to estimate months to recover the expense. Staying longer than the break even point usually favors buying points while shorter stays reduce benefits.
How To Use This Calculator
Enter loan amount interest rate without points number of points or custom rate reduction term in years and optional point cost percent. The calculator computes new rate monthly payment savings total interest savings and break even in months. Use sliders or fields to test offers and negotiate better terms today.
Formula Details
Monthly payment uses the amortization formula with principal equal to loan amount and monthly rate equal to annual rate divided by twelve. We compute payments at base and reduced rates. Points cost equals loan amount times points percent. Break even equals points cost divided by monthly savings from lower payments.
When Points May Help
Buying points can be attractive if you plan to keep the loan beyond break even have cash reserves for closing and want payment stability. Points may be less helpful when selling soon expecting refinancing or facing high opportunity costs. Compare scenarios and choose the path that supports long term goals.
How the math works
Payment = P * r * (1 + r)^n / ((1 + r)^n - 1)
Where P = loan principal, r = monthly rate = annual rate / 12, n = months
Points Cost = Loan Amount * (Point Cost % / 100) * Points
Break Even (months) = Points Cost / Monthly Savings