Points buy a lower rate up front. Whether they pay off depends on how long you keep the loan.
How it works
Break-even months = cost of the points ÷ monthly payment saving
The cost is the loan amount times the points. The saving is the difference between the principal and interest payments at the two rates. Over the years you expect to keep the loan, the calculator also compares the interest saved with what the points cost.
Keep in mind
- Compare quotes from the same lender on the same day with the same lock period; otherwise the two rates are not like for like.
- Lender credits work the other way: a higher rate in exchange for help with closing costs, which can suit a loan you expect to sell or refinance soon.
- Points on a home you live in can be tax-deductible; ask a tax adviser.
Questions
Are mortgage points worth it?
They are worth it when you keep the loan past the break-even month. If you may sell or refinance within a few years, the upfront cost is usually not recovered.
What is the difference between discount points and origination points?
Discount points buy a lower rate. Origination points are a lender fee for making the loan and do not lower the rate. Both appear on page 2 of the Loan Estimate.
