Results summary
Inputs
Example data
| Loan amount | Points | Rate drop per point | Original rate | Term | Estimated break-even |
|---|---|---|---|---|---|
| $300,000 | 1.000 | 0.250% | 7.250% | 30 years | ~38 months |
| $450,000 | 1.500 | 0.125% | 6.750% | 30 years | ~63 months |
| $250,000 | 0.750 | 0.250% | 7.000% | 15 years | ~26 months |
Formula used
- Points cost = Loan Amount × (Points ÷ 100)
- New rate = Original Rate − (Points × Rate Reduction Per Point)
- Monthly payment (amortized) = L × r ÷ (1 − (1 + r)−n)
- Monthly savings = Payment Before − Payment After
- Break-even months = Upfront Cost ÷ Monthly Savings
How to use this calculator
- Enter your loan amount, rate, and term.
- Set points and the expected rate reduction per point.
- Optionally include other closing costs in break-even.
- Add a holding time to evaluate your real horizon.
- Press Submit to view savings and break-even.
- Download CSV or PDF for easy sharing.
Understanding discount points and upfront cost
Discount points are prepaid interest paid at closing to secure a lower rate. One point usually equals one percent of the loan amount. For a $300,000 mortgage, 1.0 point costs $3,000. Because pricing varies, the same points may not always buy the same reduction. This calculator applies your quoted “rate drop per point” to estimate the new APR and the upfront cost you can compare across offers.
Linking rate changes to monthly payments
To translate a lower rate into dollars, the tool uses amortized payment math. A small rate change can move the monthly payment on large balances. On a 30-year $300,000 loan, dropping the rate by 0.25% often reduces payment by tens of dollars per month. The calculator shows payment before and after, then computes monthly savings and full-term interest in each scenario.
Interpreting break-even months for decision making
Break-even analysis answers: “How long until I recover what I paid?” The tool divides total upfront cost by monthly savings to estimate break-even months. If you include other closing costs, the recovery period becomes more conservative. Break-even is not reached when the new payment is not lower, which can happen if the rate drop is too small. Use the result to screen options that do not repay within your plan.
Using holding-period savings for realistic planning
Holding-period results are often more realistic than lifetime totals. Many borrowers refinance, sell, or pay off early. The calculator builds a month-by-month schedule through your holding years to estimate interest and cash out. It compares cash out “before points” versus “after points,” including upfront fees. Positive net savings means the lower rate paid back the points within your horizon; negative savings suggests you will not keep the loan long enough.
Practical negotiation checks before locking a rate
Use the outputs to negotiate, not just to decide. If two lenders quote similar rates, request a point comparison and confirm whether the reduction is locked or can reprice. Check how points interact with lender credits and program limits. If your timeline is uncertain, prefer shorter break-even results. Save a CSV or PDF so you can share assumptions and document the decision. Even a small change in assumptions can shift the recommendation, so rerun scenarios before committing today.
FAQs
What are discount points in simple terms?
They are upfront fees paid at closing to reduce the interest rate. Each point is typically 1% of the loan amount, but the rate benefit depends on lender pricing.
How do I choose a rate reduction per point?
Use the lender’s written quote or loan estimate. If you only have a range, test multiple values like 0.125% and 0.250% to see how break-even changes.
Should I include other closing costs in break-even?
Include them when comparing total cash needed and when you want a conservative recovery time. Exclude them if you are analyzing points-only economics.
Why can break-even show “Not reached”?
If the new payment is not lower, monthly savings are zero or negative. That can happen with tiny rate drops, very short terms, or a near-zero rate floor.
Does the calculator account for refinancing or selling?
Yes, the holding-period section estimates cash out over your chosen years and includes upfront fees. It helps evaluate points when you may exit before the full term.
Are points always worth paying?
Not always. Points tend to work best when you expect to keep the loan beyond break-even and you have sufficient cash reserves for the upfront cost.