Discount Points Calculator (Permanent Rate Buydown Break-Even)

How the Discount Points calculator works

What this calculates

Shows whether permanently buying down your interest rate with discount points pays off. Each point costs 1% of the loan and lowers the rate, reducing your monthly payment. The calculator finds the break-even month where the monthly savings recover the upfront point cost. A planning estimate; the rate reduction per point varies by lender and market.

The formula

Point cost = points x 1% x loan amount. Monthly savings = payment at the higher rate minus payment at the bought-down rate. Break-even months = point cost / monthly savings. Keep the loan past break-even and the points pay off.

A worked example

Hypothetical, for illustration only (not a rate you are being offered): a $300,000 loan over 30 years, paying 1 point ($3,000) to lower an example 6.75% to 6.50%.

Point cost = 1% x 300,000 = $3,000
Payment at 6.75% is about $1,946; at 6.50% about $1,896, a $50 monthly saving
Break-even = 3,000 / 50 = 60 months, about 5 years

About 5 years to break even in this made-up example. Keep the loan longer than that and the points save money; refinance or move sooner and they may not.

Assumptions and limits

Rates are hypothetical example inputs, not quotes; the reduction per point varies.
Points may be tax-deductible for some borrowers; talk to a tax professional.
Ignores the time value of money and any future refinance.
An estimate, not a quote or a recommendation to buy points.

What are discount points

A discount point is a fee you pay at closing to permanently lower your note rate. One point equals 1% of the loan amount, which is a fixed definition. How far a point lowers your rate is not fixed: it varies by lender, loan type, and the market on the day. That is why this tool does not assume a reduction per point. You enter the base rate and the bought-down rate from your own quote, and it does the rest.

Permanent points vs a temporary buydown

These are different tools. Discount points lower your rate for the entire life of the loan. A temporary buydown, such as a 2-1 or 3-2-1, only subsidizes the payment for the first one to three years and then the payment rises to the full note rate. If you are weighing a temporary buydown instead, use the Temporary Buydown calculator.

When do points make sense

It comes down to the break-even versus how long you keep the loan. If you will hold the mortgage well past the break-even, the points keep saving you money for years. If you expect to sell or refinance before the break-even, you would not recover the cost, so the points usually are not worth it. A seller or lender credit changes the math, because then you are not the one paying.

A note on taxes

Discount points may be tax-deductible as mortgage interest, sometimes in the year you pay them and sometimes spread over the loan. The rules depend on your situation, so treat this as general information and confirm with a tax professional. This is not tax advice.

How to use this calculator

Enter your loan amount and term, your base rate without points, and the bought-down rate with points from your quote. Enter the cost as a number of points or a dollar amount, and how long you expect to keep the loan. The result shows the cost, the monthly savings, your break-even, and the net result if you hold the loan for your expected period or to full term.

Related calculators

Temporary Buydown, Mortgage Payment, and Refinance Break-Even.

Common questions

Are mortgage discount points worth it?

Points are worth it if you keep the loan past the break-even point, where the upfront cost is recovered by the lower monthly payment. If you expect to move or refinance before then, they usually are not. Each point costs about 1% of the loan and permanently lowers your rate. The calculator finds your break-even.

How much does one discount point cost and how much does it lower my rate?

One point costs 1% of the loan amount, which is a definition. How much a point lowers your rate is not fixed; it varies by lender, loan type, and the market. That is why this calculator asks for the base rate and the bought-down rate from your own quote rather than assuming a reduction per point.

What is the difference between discount points and a temporary buydown?

Discount points permanently lower your note rate for the life of the loan, paid at closing. A temporary buydown, like a 2-1 or 3-2-1, subsidizes only the first one to three years of payments and then reverts to the full note rate. They solve different problems. Use the Temporary Buydown calculator for that scenario.

Can the seller or lender pay for my discount points?

Yes. A seller credit or lender credit can cover points, within program concession limits. When a credit pays, you are not spending your own money, so the borrower break-even does not apply, though the lower rate still helps. The Seller Credit calculator covers how much a seller can contribute.

Are discount points tax-deductible?

Discount points may be deductible as mortgage interest, sometimes in the year paid and sometimes over the life of the loan, depending on your situation. This is general information, not tax advice. Confirm how it applies to you with a tax professional before counting on a deduction.

This calculator is for educational estimates only. It isn't an offer to lend, a quote, or a commitment to make a loan. Your actual numbers depend on your loan, credit, property, and other factors. Rates and programs may change without notice.