Mortgage discount points let you pay more at closing in exchange for a lower mortgage interest rate, which can reduce your monthly principal-and-interest payment and the interest you pay over time. Our discount points calculator helps you compare those upfront and long-term costs by estimating the price of the points, your payment with and without them, monthly savings and how long it takes to reach break-even.
How to Use Our Mortgage Discount Points Calculator
Enter your mortgage amount, loan term, interest rate, number of discount points and estimated rate reduction per point. The calculator compares the mortgage with points against the same loan without points.
| Input |
What It Means |
Why It Matters |
| Loan amount |
The amount you finance |
Discount points are priced as a percentage of the loan amount. |
| Base mortgage rate |
The interest rate without the selected points |
This provides the starting payment for the comparison. |
| Discount points |
The number of points paid at closing |
One point costs 1% of the mortgage amount. |
| Rate reduction per point |
The assumed reduction in your mortgage rate |
Actual point pricing varies by lender, loan and market conditions. |
| Loan term |
The mortgage repayment period |
The term affects the payment and long-term interest calculation. |
The calculator's Break-Even view estimates how long your monthly savings take to recover the upfront cost of the discount points. Monthly Savings compares the principal-and-interest payments, while Lifetime Savings estimates the difference if you keep the mortgage for its full term.
The rate reduction entered in the calculator is an assumption. The CFPB explains that the rate reduction associated with discount points depends on the lender, mortgage type and market conditions.
What Are Discount Points on a Mortgage?
Discount points, also called mortgage points, are upfront charges paid to a lender in exchange for a lower mortgage interest rate. One discount point equals 1% of your loan amount.
For example, one discount point on a $400,000 mortgage costs $4,000. Half a point would cost $2,000, while 1.5 points would cost $6,000.
The percentage tells you what the points cost, not exactly how much the mortgage rate will fall. One lender might offer a 0.25-percentage-point reduction for one point in a particular rate scenario, while another rate quote could produce a different reduction.
The CFPB notes that points shown on your Loan Estimate must be connected to a discounted interest rate. You can find them in the origination charges section of the Loan Estimate.
How Discount Points Affect Your Mortgage
Buying discount points changes two major parts of the mortgage calculation: your upfront closing costs and your interest rate.
You pay more at closing because the points are an additional loan cost. In return, the lower interest rate reduces the principal-and-interest payment on the mortgage.
On a fixed-rate mortgage, that reduced note rate generally applies for as long as you keep the loan. The savings therefore accumulate each month until you sell the home, pay off the mortgage or refinance it.
The effect is different from a temporary mortgage buydown. Discount points reduce the mortgage's note rate. A temporary buydown instead uses a subsidy to lower the amount you pay for a limited introductory period.
How Much Does One Discount Point Cost?
One discount point costs 1% of the mortgage amount. The dollar cost therefore rises as the loan amount increases.
| Mortgage Amount |
Cost of 0.5 Points |
Cost of 1 Point |
Cost of 2 Points |
| $200,000 |
$1,000 |
$2,000 |
$4,000 |
| $300,000 |
$1,500 |
$3,000 |
$6,000 |
| $400,000 |
$2,000 |
$4,000 |
$8,000 |
| $500,000 |
$2,500 |
$5,000 |
$10,000 |
The cost percentage is standardized. The rate reduction is not.
How Much Do Discount Points Lower Your Mortgage Rate?
There is no universal point-to-rate conversion. A common example is one discount point reducing a mortgage rate by 0.25 percentage points, but actual pricing can be higher or lower.
For example, a lender could quote a $400,000 mortgage at 6.75% with no points and 6.50% with one point. In that scenario, the borrower pays $4,000 upfront for a 0.25-percentage-point rate reduction.
Another lender or another day's rate sheet could offer a different tradeoff. Compare actual Loan Estimates rather than assuming one point will always buy the same rate reduction.
How to Calculate Discount Points Break-Even
The discount points break-even period estimates how many months of lower mortgage payments are needed to recover the upfront cost of the points.
Break-even period = cost of discount points ÷ monthly principal-and-interest savings
Consider a hypothetical $400,000, 30-year fixed mortgage with a 6.75% base rate. Assume one discount point costs $4,000 and reduces the rate to 6.50%.
| Example Item |
Amount |
| Mortgage amount |
$400,000 |
| Cost of 1 discount point |
$4,000 |
| Rate without points |
6.75% |
| Rate with points |
6.50% |
| Payment without points |
About $2,594 |
| Payment with points |
About $2,528 |
| Estimated monthly savings |
About $66 |
| Estimated break-even |
About 61 months |
In this example, you would need to keep the mortgage for roughly five years before the accumulated principal-and-interest savings recover the $4,000 upfront cost. Savings after that point begin to exceed the original point cost.
The calculation includes principal and interest only and assumes the loan remains in place. It does not account for opportunity cost, taxes, changes in investment returns or a future refinance.
When Do Discount Points Make Sense?
The main question is whether you expect to keep the mortgage long enough to reach and move beyond the break-even point.
You Expect to Keep the Mortgage for Several Years
If your break-even period is five years and you expect to keep the same mortgage for 10 years, the lower payment has substantially more time to offset the upfront expense.
If you expect to refinance in two years, the same point purchase would have much less time to generate savings.
You Want a Lower Monthly Mortgage Payment
Discount points can reduce your required principal-and-interest payment by lowering the note rate. The amount of the reduction depends on your mortgage balance and the rate difference.
Use the mortgage payment calculator to compare the payment at different rates separately from the upfront point cost.
You Have Enough Cash After Closing
Buying discount points increases the cash needed at closing. The lower rate can be less useful if paying for it leaves you without adequate savings for repairs, emergencies or other post-closing expenses.
Consider your mortgage reserves before committing additional cash to points.
When Discount Points May Not Make Sense
Discount points can be less attractive when the expected life of the mortgage is shorter than the break-even period or when the upfront cash has a more valuable use.
You Expect to Refinance Soon
Discount points are attached to the mortgage on which you paid them. Refinancing pays off that loan and replaces it with another mortgage.
If you refinance before reaching break-even, you may not recover the original point cost through lower monthly payments.
You Expect to Sell Before Break-Even
Selling the home also pays off the mortgage. If you expect to move within a few years, compare your likely ownership period with the calculator's break-even result before paying points.
You Need the Cash for Your Down Payment or Reserves
The same money used for discount points could instead increase your down payment or remain available after closing.
The better use of that money depends on how each option changes the mortgage and your overall financial position.
Discount Points vs. a Larger Down Payment
Discount points and a larger down payment both require more cash upfront, but they change the mortgage differently. Points lower the interest rate. A larger down payment reduces the amount you borrow.
| Use of $4,000 |
Example Effect |
Main Tradeoff |
| Buy 1 discount point |
Rate falls from 6.75% to 6.50% in this hypothetical example |
Same loan balance with a lower interest rate |
| Add $4,000 to the down payment |
Mortgage balance falls from $400,000 to $396,000 |
Lower loan balance with the same interest rate |
A larger down payment vs. discount points comparison becomes particularly important when the extra down payment changes another part of the loan. For example, reaching an applicable mortgage insurance or loan-pricing threshold could make the additional down payment more valuable than simply reducing the balance.
Discount Points vs. Lender Credits
Discount points and lender credits represent opposite sides of the rate-and-closing-cost tradeoff.
With discount points, you pay more upfront for a lower mortgage rate. With lender credits, you generally accept a higher rate in exchange for the lender covering part of your closing costs.
The CFPB explains that lender credits essentially work in reverse from points.
If you're comparing lenders, ask for comparable quotes with zero points, with discount points and with lender credits. That makes it easier to see how each option changes the rate, cash required at closing and monthly payment.
Discount Points vs. a Temporary Mortgage Buydown
Both options can reduce a mortgage payment, but they work differently.
Discount points reduce the note rate on the mortgage. On a fixed-rate loan, that lower rate remains in place while you keep the loan.
A temporary buydown does not change the note rate. Instead, an upfront subsidy covers part of your required payment during the first one to three years before your payment reaches the full note-rate amount.
If your goal is long-term rate savings, discount points provide the more direct comparison. If the goal is temporary payment relief early in the loan, a temporary buydown addresses a different need.
Discount Points on a Refinance
You can also pay discount points when refinancing a mortgage. The calculation works the same way: you pay more upfront to obtain a lower interest rate on the new loan.
Break-even can be especially important on a refinance because the new mortgage could itself be refinanced or paid off before the points have generated enough monthly savings to recover their cost.
Compare the cost of the points with the monthly savings and the length of time you realistically expect to keep the new mortgage.
Are Discount Points Tax-Deductible?
Mortgage points can qualify for the home mortgage interest deduction under certain circumstances, but the rules depend on the loan and your tax situation.
The IRS explains the general tax rules for home mortgage points, while Publication 936 provides more detailed guidance on the home mortgage interest deduction.
The treatment can differ depending on factors such as whether the mortgage was used to buy or refinance a home. Consult a qualified tax professional about how the rules apply to your specific situation.
The Bottom Line
Discount points let you trade a higher upfront mortgage cost for a lower interest rate and monthly principal-and-interest payment. One point always costs 1% of the loan amount, but the rate reduction you receive for that point varies.
The discount points calculator helps put that tradeoff into numbers by showing the point cost, payment savings and estimated break-even period. If you expect to keep the mortgage well beyond break-even, points have more time to generate savings. If you plan to refinance or sell sooner, preserving the upfront cash may be more useful.
Frequently Asked Questions
What Are Discount Points?
Discount points are upfront mortgage charges paid to a lender in exchange for a lower interest rate. They are also commonly called mortgage points.
How Much Does One Discount Point Cost?
One discount point equals 1% of the loan amount. One point costs $3,000 on a $300,000 mortgage, $4,000 on a $400,000 mortgage and $5,000 on a $500,000 mortgage.
How Much Does One Discount Point Lower a Mortgage Rate?
There is no fixed reduction. A 0.25-percentage-point reduction is commonly used as an example, but actual point pricing depends on the lender, mortgage product and market conditions.
Where Do Discount Points Appear on a Loan Estimate?
Discount points paid to reduce the interest rate appear with origination charges on page 2 of the Loan Estimate. The disclosed points are shown as both a percentage of the loan amount and a dollar amount.
How Do You Calculate Discount Points Break-Even?
Divide the upfront cost of the discount points by the monthly principal-and-interest savings. For example, $4,000 in points divided by $66 in monthly savings produces a break-even period of roughly 61 months.
Are Discount Points the Same as Origination Fees?
No. Discount points specifically buy a lower mortgage interest rate. Other origination charges compensate the lender for costs associated with making the loan and do not necessarily reduce your rate.
Can a Seller Pay Discount Points?
A seller contribution can sometimes be used toward discount points, subject to the mortgage program's interested-party contribution or seller-concession rules and the terms of the transaction.
Are Discount Points Refundable if You Refinance or Sell?
Discount points paid at closing are generally not returned simply because you later sell the home or refinance the mortgage. If you pay off the loan before reaching break-even, you may not recover the point cost through monthly savings.
What Is the Difference Between Discount Points and Lender Credits?
Discount points increase your upfront closing costs in exchange for a lower interest rate. Lender credits generally reduce your upfront closing costs in exchange for a higher interest rate.
What Is the Difference Between Discount Points and a Temporary Buydown?
Discount points reduce the mortgage's note rate. A temporary buydown leaves the note rate unchanged and temporarily subsidizes part of the mortgage payment during the first portion of the loan.
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