What is a mortgage point?
One discount point generally equals 1% of the loan amount. The rate reduction purchased by a point is not fixed; it depends on the market, lender and loan scenario.
Simple breakeven
Divide the additional upfront cost by the monthly principal-and-interest savings. A $4,000 cost that saves $80 per month has a simple breakeven of 50 months.
The better comparison
Simple breakeven ignores the remaining loan balance, time value of money, taxes, opportunity cost and the possibility of moving or refinancing. Compare total cash flow and balance at the expected decision date.
Points can be rational
They may make sense for a long holding period, predictable cash flow and sufficient reserves. They are less attractive when the borrower expects to sell or refinance before breakeven.
Seller-paid points
A seller credit can reduce upfront borrower cost, but concessions are limited and still affect negotiation economics. Compare the credit with a price reduction and other uses.
Use a decision horizon, not a single payment
Mortgage comparisons become clearer when measured over the period you realistically expect to keep the loan or property. Review cash today, monthly cost, balance later and the risks that could change the plan.
- Upfront cash and financed costs
- Monthly payment under realistic taxes and insurance
- Interest and remaining balance over the decision horizon
- Break-even point and expected holding period
- What happens if rates, value or timing differ from the forecast
Frequently asked questions
How is the points breakeven calculated?+
Divide the incremental upfront cost by the monthly principal-and-interest savings, then test whether you expect to keep that loan beyond the result.
Are points always tax deductible?+
Tax treatment depends on the transaction and your circumstances. Consult a qualified tax professional.
What can invalidate the breakeven?+
Selling, refinancing, prepaying aggressively or receiving a lender credit can change the economics.