Question 1

What are mortgage points?

Accepted Answer

Mortgage points are fees paid to the lender at closing in exchange for a lower interest rate. Each point typically costs 1% of the loan amount and reduces the interest rate by about 0.25%. Points are also called discount points or origination points.

Question 2

How do mortgage points work?

Accepted Answer

When you pay mortgage points, you're essentially prepaying interest to get a lower rate. For example, paying 1 point on a $500,000 loan costs $5,000 upfront but reduces your interest rate from 7.5% to 7.25%, saving you money on monthly payments.

Question 3

What is the difference between discount points and origination points?

Accepted Answer

Discount points are optional fees paid to reduce the interest rate, while origination points are fees charged by the lender for processing the loan. Discount points are tax-deductible, while origination points may or may not be, depending on the loan type and your situation.

Question 4

Should I pay mortgage points?

Accepted Answer

Whether to pay mortgage points depends on how long you plan to stay in the home. If you'll stay long enough to recover the points cost through lower monthly payments, points can save you money. Use our calculator to determine your break-even point.

Question 5

How much do mortgage points cost?

Accepted Answer

Each mortgage point costs 1% of the loan amount. For example, 1 point on a $500,000 loan costs $5,000, 2 points cost $10,000, etc. The cost is paid upfront at closing, so you need to have the cash available.

Question 6

How much do mortgage points reduce the interest rate?

Accepted Answer

Typically, each point reduces the interest rate by 0.25%. However, this can vary by lender and market conditions. Some lenders may offer better or worse point-to-rate reductions. Always compare multiple lenders to get the best deal.

Question 7

Are mortgage points tax deductible?

Accepted Answer

Discount points are generally tax-deductible in the year paid if they're used to reduce the interest rate on a primary residence. Origination points may also be deductible. Consult a tax advisor for specific guidance on your situation.

Question 8

What is the break-even point for mortgage points?

Accepted Answer

The break-even point is when your monthly savings from the lower interest rate equal the upfront cost of the points. For example, if points cost $5,000 and save you $100 per month, your break-even point is 50 months (about 4 years).

Question 9

Can I negotiate mortgage points?

Accepted Answer

Yes, you can often negotiate the number of points and the rate reduction they provide. Some lenders may offer better point-to-rate ratios, or you may be able to negotiate lower origination fees. Always shop around and compare offers from multiple lenders.

Question 10

When should I not pay mortgage points?

Accepted Answer

Don't pay mortgage points if: you plan to sell or refinance before the break-even point, you don't have enough cash for closing, you can invest the money elsewhere for better returns, or the break-even period is too long for your situation.

Mortgage Points Calculator - Mortgage Points Cost Calculator

Points Information

Payment Breakdown

Points Cost

Monthly Savings

Break-Even

Points Investment

Break-Even Analysis

Long-term Savings

Decision Factors

Mortgage Points Calculator Types & Features

Quick Example Result

How Our Mortgage Points Calculator Works

The Mortgage Points Formula

Mortgage Points vs No Points

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Mortgage Points Calculator Examples

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2 Points Example

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