What Are Mortgage Points?
Discount points are an upfront fee paid at closing in exchange for a lower interest rate on your mortgage. One point typically costs 1% of your loan amount and usually lowers your rate by a fraction of a percent, though the exact tradeoff varies by lender.
The Formula
The cost of points is calculated as Loan Amount × (Points / 100). The calculator then compares your monthly payment at the rate without points to your payment at the reduced rate with points, using the standard amortization formula for each, and divides the points cost by the monthly savings to find your breakeven point: Breakeven Months = Points Cost / Monthly Savings.
This tool is for general planning and educational purposes. Buying points generally only pays off if you keep the loan longer than the breakeven period, so factor in how long you realistically expect to stay in the home or keep the loan.