Mortgage Discount Points Guide: Breakeven Math & When Buydowns Pay Off
Learn how to evaluate mortgage discount points: calculating upfront costs, permanent interest rate reductions, monthly payment savings, and exact breakeven months.
Mortgage discount points are prepaid interest paid to the lender at closing to permanently reduce the mortgage interest rate, typically by 0.25% per point purchased. One point costs exactly 1.0% of the loan amount. To determine if buying points makes financial sense, divide the upfront cost by the monthly payment savings. If you plan to remain in the property past the breakeven horizon (typically 50 to 70 months), discount points generate net financial profit.
Calculate Your Mortgage Points Breakeven Horizon
Input loan amount, base interest rate, and points purchased to determine your exact monthly savings and breakeven date.
1. The Breakeven Formula To evaluate discount points, compare upfront cash outlay against the annuity of monthly cash savings: $$\mathbf{\text{Breakeven Months}} = \frac{\text{Upfront Points Dollar Cost}}{\text{Monthly Payment Savings}}$$
If your planned home tenure exceeds the calculated breakeven months, buying points is mathematically accretive to net worth.
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