1. Your loan
2. Your assumptions
Result
Questions people ask
Are mortgage points worth it?
It depends on how long you keep the loan. Points are paid at closing and the lower payment pays them back slowly, so they win if you keep the loan past the break-even month and lose if you sell or refinance first. This tool shows the simple break-even (points divided by the monthly saving), the break-even after counting what the cash could have earned, and how much ahead or behind you are at the year you expect to sell or refinance.
How do I calculate the break-even on mortgage points?
Divide the cost of the points by the drop in the monthly payment. $4,000 of points that cut the payment by $99 breaks even in about 40 months. That simple figure ignores two things this tool adds: the cash you spent on points could have been invested, and a lower rate also pays the loan down slightly faster, so the true break-even is usually a little earlier or later than the simple one depending on your assumptions.
What is the implied return on mortgage points?
It is the yearly return you earn on the cash you spend on points, counting the payment savings and the lower balance you owe if the loan ends at your horizon. Compare it with what you could earn on that cash elsewhere, such as paying down a higher-rate debt or keeping an emergency fund. A return that is low at your realistic horizon is a sign the points are not worth buying.
What is the chance of selling or refinancing in the model?
You type the yearly chance you will sell or refinance. The tool turns it into a monthly chance and weighs every possible end month by how likely it is, giving the expected advantage and the chance you finish ahead. Most mortgages end long before the full term, so a break-even of seven years with a ten percent yearly chance of moving is less safe than it looks.
How do I compare a lender credit instead of points?
A lender credit is the same trade run the other way. Put the rate you would get with the credit in the no-points rate box, put the lower rate you would get without it in the points rate box, and enter the credit as the points cost. The result tells you whether the credit is worth the higher rate you would carry.
How is tax handled?
The tool takes one marginal tax rate on mortgage interest. If you itemize, a lower interest bill means a smaller deduction, so the tax rate reduces the saving; if you take the standard deduction, leave it at 0. It does not model deducting the points themselves, which depends on your loan and your return. Confirm with a tax professional.
Is this financial advice?
No. It is arithmetic on numbers you type from your loan estimate, with simplified assumptions: a fixed-rate loan, points paid in cash at closing, a constant return on cash and a constant yearly chance of moving. Real rates, fees and your plans change. Check the figures against your Loan Estimate and consider a licensed adviser.
Not decided
Whether you can get the lower rate by shopping lenders instead of paying points, your credit and loan fees, whether the points are deductible for you, adjustable-rate loans, loans where points are rolled into the balance, prepayment you may make, what the cash could do if you need it for the down payment or an emergency, and whether you will really stay. Fixed-rate loan, points paid in cash at closing, constant return on cash, constant yearly chance of moving.
Related tools: the HELOC vs cash-out refinance calculator, the mortgage extra payment vs invest calculator, the 1031 exchange calculator and the mortgage escrow analysis checker for other parts of owning property.