Mortgage Points Calculator: Is Buying Down Your Rate Worth It?
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Mortgage Payment — The Full PITI Picture
The amortization formula gives only principal and interest. Your real monthly payment adds property taxes, insurance, and — below 20% equity — PMI, which protects the lender, not you. Escrow accounts bundle these so you pay one number; the calculator's tax/insurance fields reproduce the PITI total.
Rate matters more than price at long terms: on $400k at 6.5% for 30 years, P&I ≈ $2,528. At 5.5%, ≈ $2,271 — $257/month, $92,000 over the loan. Points (1 point = 1% of loan prepaid) buy rate down; the break-even is usually 4-6 years of ownership.
Worked Example: $400,000 Home, 20% Down, 6.5%, 30 Years
Loan: $320,000; r = 6.5%/12 = 0.5417%; n = 360
P&I = 320,000 × [0.005417 × 1.005417^360] ÷ [1.005417^360 − 1] ≈ $2,022.62
+ taxes $500/mo + insurance $120/mo (no PMI at 20% down)
Total PITI ≈ $2,642.62 — and the first payment includes only ≈ $289 of principal
Interest over 30 years: $2,022.62 × 360 − 320,000 ≈ $408,143
You'd pay back more in interest than the house cost. One extra payment per year (biweekly schedule) cuts ~6 years and ~$95k of interest — principal prepayment early in the loan is worth the most.
Frequently Asked Questions
How much house can I afford?
Lenders cap housing cost at 28% of gross income and total debts at 36-43% (DTI). On $100k income: ≈ $2,333/month housing max. Better rule: keep PITI under 25% of gross so maintenance (1-2%/yr of home value) and life don't squeeze you.
15-year or 30-year mortgage?
15-year rates run ~0.75-1% lower and the same $320k loan costs ≈ $2,712/month but only ≈ $168k total interest vs $408k. Choose 30-year for cash flow flexibility and invest the difference only if you actually will — the guaranteed 6.5% 'return' of paying off early beats most investing for risk-averse households.
When should I refinance?
Classic rule: refinance when the new rate is ≥0.75-1% lower and you'll stay past the break-even (closing costs ÷ monthly savings — typically $2,500-5,000 costs ÷ $200+ savings ≈ 1-2 years). Also refinance to drop PMI, switch ARM→fixed, or shorten the term.
How does PMI disappear?
At 22% equity it auto-terminates (conventional loans, current on payments); you can REQUEST removal at 20% based on the original schedule, or earlier with a new appraisal showing 20% equity. FHA loans keep MIP for the life of the loan unless you refinance to conventional.
Authoritative Sources & Further Reading
Last reviewed: September 2026. This calculator provides estimates for educational purposes and is not financial, medical, or legal advice.
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TL;DR
Paying 1 point (1% of the loan) lowers your rate ~0.25% — when does the math pay off? The break-even formula, the tax angle, and the scenarios where points lose money.
Discount points are prepaid interest: you pay cash at closing to permanently lower your rate. One point costs 1% of the loan amount and typically buys ~0.25% off the rate — but the payoff depends entirely on how long you keep the loan.
The Break-Even Formula
Break-even (months) = Points cost ÷ Monthly payment savings
Example: $400,000 loan, 30 years:
| | Rate 6.50% | Rate 6.25% (1 point) | |---|---|---| | Points cost | $0 | $4,000 | | Monthly P&I | $2,528 | $2,465 | | Monthly saving | — | $63 |
Break-even = 4,000 ÷ 63 ≈ 63 months (5.3 years). Stay past year 5.3 and every remaining month is profit; move or refinance before, and the points die with the loan.
Verify with your numbers on the mortgage calculator, then compare lifetime cost with the loan comparison calculator.
When Points Win
- Long holds (7-30 years): the classic case — 10+ years of savings on a $400k loan ≈ $7,500+, nearly double the cost
- Cash-rich, rate-averse buyers: locking certainty at the best possible rate
- High tax brackets: points on a PURCHASE primary home are generally deductible in the year paid (refinance points amortize over the loan life — confirm with a tax pro)
- Rate environment near peaks: buying down a high rate locks permanent savings; if rates fall later you can refinance AND the old points were still worth it if you held past break-even
When Points Lose
- Short horizons: relocations every 3-5 years, or planning to refinance when rates drop
- Opportunity cost: $4,000 invested at 7% for 30 years ≈ $30,000 — points must beat your alternative return
- Thin cash reserves: paying points while draining the emergency fund converts liquidity into a bet on longevity
- Negative points (credits): the inverse trade — taking a HIGHER rate for closing credits makes sense for no-cash buyers; the same break-even math applies in reverse
The Negotiation Angle
Points are priced by the lender daily. The same 0.25% buydown can cost 0.8-1.3 points depending on the lender's pricing sheet that day — which is exactly why you request two Loan Estimates at the same rate, one with points and one without, and make lenders compete. Ask specifically: 'What is your par rate, and what does one point buy today?'
People Also Ask (PAA)
How much does 1 point lower a mortgage rate? Typically 0.25% per point on a 30-year fixed (range 0.125-0.375% depending on the lender's daily pricing). On a $400,000 loan, one point costs $4,000 and saves roughly $60-70/month.
Is it worth paying points on a 30-year mortgage? If you keep the loan past the break-even (usually 4-7 years) — yes: lifetime savings commonly reach 1.5-2.5× the cost. If you might move or refinance sooner, keep the cash.
Are mortgage points tax deductible? Points on a purchase of a primary residence are generally fully deductible in the year paid (itemizing required); refinance points must be amortized over the loan term. Rules have income limits — confirm with a tax professional before counting on it.
What are lender credits? The opposite of points: you accept a higher rate and the lender pays part of your closing costs. The same break-even logic applies in reverse — take credits if cash-poor or short-hold; pay points if cash-rich and long-hold.
Model Your Break-Even
Enter both scenarios in the mortgage calculator (rate with and without the buydown) and check the amortization difference — the practical math guide covers the underlying present-value logic.
Last reviewed: September 2026. Educational content, not financial or tax advice.\n
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