Mortgage Points Calculator

Paying 2 points on a 250,000 loan = 5,000 upfront. If each point reduces the rate by 0.25%, rate drops 0.5%. On a 25-year loan, that typically saves about 70/month. Break-even: 71 months. Only worth it if you plan to stay past break-even.

Run it with sensible defaults

Using loan amount of 250,000, points paid of 2, rate reduction per point of 0.25%, base rate of 5%, the calculation works out to 5,000.00. The defaults are meant as a starting point, not a recommendation.

The levers in this calculation

The inputs — Loan Amount, Points Paid, Rate Reduction per Point, Base Rate, and Term — do not pull with equal force. Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.

How the math works

Each point = 1% of loan amount. Rate reduction = points × per-point reduction. Monthly saving computed from base vs new rate amortisation.

Why this matters

Whether to pay for points or take the higher base rate is one of the cleaner mortgage trade-offs to model. The upfront cost is fixed and known. The monthly saving is fixed (subject to rate stability). The only uncertain variable is how long the borrower will hold the loan — sell or refinance before break-even and the points cost more than they save; hold past break-even and they pay off. Running the calculator with different holding-period assumptions makes the decision visible.

What this doesn't capture

The figure excludes the opportunity cost of the upfront points payment (capital that could have been invested or used elsewhere), any tax treatment of points where deductible, and the possibility of refinancing or selling before break-even — both of which can leave the upfront cost only partially recouped. The break-even calculation assumes the original rate and term hold for the full period.

Worked example

A borrower takes a loan of 300,000 over 30 years at a base rate of 4.5%. They purchase 1.5 points with a rate reduction of 0.25% per point.

• Upfront cost: 300,000 × 1.5% = 4,500
• Rate reduction: 1.5 × 0.25% = 0.375%
• New rate: 4.5% − 0.375% = 4.125%
• Monthly payment at 4.5%: approximately 1,520
• Monthly payment at 4.125%: approximately 1,454
• Monthly saving: approximately 66
• Break-even: 4,500 ÷ 66 = 68 months (5.7 years)

The borrower recovers the upfront cost after roughly 68 months. If they remain in the property or keep the mortgage beyond that point, the lower rate continues to deliver value.

When this calculation matters

The points-versus-rate trade-off becomes relevant in several contexts:

• Refinancing an existing loan to a lower rate
• Choosing between rate options at origination when multiple products are available
• Estimating the lifetime cost of a mortgage when rate and upfront fee vary together
• Planning around a known holding period (e.g., expecting to sell or move within a fixed timeframe)

What the result shows and does not show

This calculator models the arithmetic relationship between upfront cost, interest rate, and monthly payment over a fixed term. It shows the break-even point in months and the cumulative interest paid under each scenario.

It does not account for taxes, regulatory changes, lender-specific terms, inflation, or opportunity cost of the upfront capital. It does not model partial repayment, overpayment, or portability of points. The monthly payment figures are estimates for comparison purposes and may differ from your actual statement due to rounding and payment timing.

For educational illustration

This tool calculates payment and cost outcomes based on your inputs. Results are illustrations of how the numbers behave, not forecasts or guarantees of actual savings or future rates.