Mortgage Points
What an upfront fee for a lower rate saves each month, and how long it takes to pay the fee back.
Enter your numbers
Example: 240000
Example: 6
Example: 30
Example: 2
Example: 5.5
Recent
Formula
How the calculation works
Points are a fee paid up front to buy a lower rate. On a 240,000 loan, two points cost 4,800 and move the rate from 6% to 5.5%, saving 76.23 a month. The fee is repaid after 63 months, and everything past that is gain.
The break-even month is the whole decision. Staying longer than it wins, moving or refinancing before it loses, and the term matters because a longer loan gives the saving more months to repay the fee.
Common mistakes
- Buying points without a break-even in mind. The fee is real money on day one and only pays back over time, so the month it breaks even has to be compared with how long you will stay.
- Assuming points always pay off on a long loan. If the rate cut is small the break-even can stretch past the point you expect to sell.
When to use it
- Use it when a lender offers points and you want to know the month the fee is repaid, so you can set that against how long you plan to stay.
- It is also the tool for comparing a points deal with a no-points one: the one with the lower total cost over your actual holding period wins.
Worked example
On 240,000, paying 2 points to move from 6% to 5.5% costs 4,800 and saves 76.32 a month, repaid in 63 months.
Common questions
Are points worth buying?
Yes if you stay well past the break-even month. Sell or refinance before it and the fee is never recovered.
What if the term changes?
A longer term keeps the monthly saving the same but gives it more months to repay the fee, so points tend to work better on longer loans.
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