$400,000 mortgage: one point for a 0.25% rate reduction

Cost or constraint

Point cost: $4,000

Timing or value

Payment at 6.50%: about $2,528

Cost or constraint

Payment at 6.25%: about $2,463

Timing or value

Monthly difference: about $65

Cost or constraint

Simple break-even: roughly 62 months before balance and tax effects

Keep the time period, usage and exit point consistent across both choices.

Compare the alternatives on equal terms

Price the specific rate sheet

There is no universal rate reduction per point. Compare the lender’s same-day rate-and-fee combinations for the same product and lock period.

Simple versus full break-even

Dividing point cost by payment savings is a useful screen. A fuller model also compares loan balances and the time value of upfront cash.

Expected loan life

Sale, refinance and early payoff end the stream of savings. Use the shorter of expected ownership and expected mortgage life.

Credits are negative points

A lender credit can reduce cash due in exchange for a higher rate. Evaluate it with the same break-even logic in reverse.

This decision belongs in The Real Cost of a Mortgage. Use Mortgage Closing Costs: Sort Loan Charges From Prepaids to check the next assumption, then test the numbers in the Mortgage Points Calculator.

Make both options comparable

Points exchange cash now for a lower rate later. Measure payment and balance differences through the date you expect to sell, refinance or repay instead of using full-term interest automatically.

Quote details for the point decision

  • Same-day rate options with and without points.
  • Dollar cost of points and all other lender charges.
  • Expected exit date and remaining balance under both options.
  • Collect same-day quotes with zero, positive and negative points.
  • Calculate upfront cost or credit.
  • Compare payments and balances at likely exit dates.
  • Include opportunity cost only with an explicit assumption.
  • Choose based on expected loan life, not the 30-year headline.

Compare both paths on the same clock

Mortgage Points Calculator

Find whether an upfront rate buy-down is recovered before you sell or refinance.

Where the comparison stops being fair

  • Assuming one point always cuts rate by 0.25%.
  • Using the property price instead of loan amount.
  • Ignoring a planned refinance or move.
  • Treating tax deductibility as guaranteed personal savings.

Questions this decision usually raises

Can points be financed?

Sometimes, but that raises principal and adds interest; model the financed amount.

Are points tax deductible?

Tax treatment depends on circumstances and current law; consult authoritative tax guidance.

What if break-even is near my planned move date?

Use a conservative holding period and recognize that transaction timing is uncertain.

Evidence behind the comparison

This page explains a calculation, not a personal recommendation. Contract rules and consumer protections vary by product and jurisdiction. Check the current agreement and official guidance before acting.