Mortgage Points & Rate Buy-Downs: Cost, Break-Even & Calculation Guide
Understand mortgage discount points (1 point = 1% of loan balance), break-even timelines, upfront costs, and interest rate reduction trade-offs.
By Sarah Jenkins, CFA
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Reviewed by David Vance, CFP
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5 min read
What Are Mortgage Discount Points?
Mortgage discount points are upfront fees paid directly to the lender at closing in exchange for a permanently reduced interest rate over the life of the loan. One discount point equals 1% of your total loan amount and typically lowers your APR by 0.25%.
Mortgage Points Break-Even Formula
Points Break-Even Calculation
Break-Even Period (Months) = Total Cost of Upfront Points ÷ Monthly Payment Savings
When Buying Mortgage Points Makes Sense
- Long-Term Home Ownership: If you plan to remain in the home longer than the break-even period (typically 4–6 years).
- Seller Concessions: Using seller closing cost credits to buy down your interest rate.