What This Calculator Does
The calculator converts entered discount points into a dollar cost, calculates principal-and-interest payments at the entered rates, and compares the monthly difference with the upfront expense.
It also shows the estimated net difference at the user’s expected sale or refinance horizon. That figure excludes tax treatment and other loan differences.
Worked example
One point on a $350,000 loan costs $3,500. If the lower entered rate reduces principal and interest by approximately $57 per month, the simple break-even period is about 62 months. Selling or refinancing before then may prevent the monthly savings from recovering the full point cost.
Formula and Methodology
One point equals one percent of the loan amount. The calculator multiplies the entered point percentage by the loan amount to estimate the upfront cost.
Monthly principal-and-interest payments use the standard fixed-rate amortization formula. The break-even period divides the point cost by the monthly payment difference when the option with points produces savings.
Assumptions and Limitations
Assumptions
- Both choices use the same loan amount, amortization term, and fixed-rate structure.
- The entered rates and point cost come from actual comparable lender options whenever possible.
- Payments are made as scheduled through the comparison horizon.
What It Cannot Determine
- It excludes tax consequences, opportunity cost, other fee differences, and the time value of upfront money.
- It does not account for future refinancing, sale proceeds, prepayment, or changes to taxes, insurance, or mortgage insurance.
- A lower rate does not guarantee that paying points fits a particular borrower’s plans or finances.
Frequently Asked Questions
What is one mortgage point?
One point equals one percent of the loan amount. On a $300,000 loan, one point is $3,000.
Are discount points the same as lender credits?
No. Discount points are an upfront charge commonly associated with a lower rate. Lender credits offset upfront costs and may be associated with a higher rate.
What if the points option does not lower the payment?
The calculator reports no break-even when the entered points option does not create principal-and-interest savings.
Should I pay points?
This calculator cannot make that decision. Compare actual options, consider how long you may keep the loan, and review the full costs and terms with appropriate professionals.
Official Sources
The methodology and terminology were checked against the following primary government resources. Loan Under Review is not affiliated with or endorsed by these agencies.
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This calculator provides an educational estimate based on the information and assumptions entered. It is not a loan estimate, rate quote, appraisal, preapproval, approval decision, financial recommendation, or commitment to lend. Actual program requirements, qualifying calculations, rates, fees, insurance costs, taxes, and lender practices may differ.
Last reviewed: by the Loan Under Review Editorial Team.