Should You Buy Points? The Break-Even on a Rate Buydown
Assumptions on sliders · method reviewed September 7, 2026
Shows the month a rate buydown has paid for itself, what it earns if you keep the loan as long as you expect, and whether a seller credit toward points beats the same dollars off the price. AboutLess
In plain words. Discount points are cash paid at closing to lower the rate on a mortgage. Each point costs a share of the loan, one percent by convention, and lowers the rate by an amount the lender quotes. This tool prices the loan with and without the points, counts the interest each one charges month by month, and finds the month the points have paid for themselves. It then measures your position at the year you expect to sell or refinance, and works out the yearly return the points earn to that point, so you can set it beside the rate on the loan itself.
Why it matters. Points are a bet on staying. Sold or refinanced too soon, the cash is gone and most of the saving never arrived. The break-even says when the bet pays. The horizon says whether you will be there to collect.
An example. $400,000 for 30 years at 6.75%, one point costing $4,000 for a cut to 6.50%: the payment falls by about $66 a month, the rule of thumb says 61 months, and the interest count says 48 months. Kept 7 years, the point leaves you ahead by about $3,039 and earns about 14.6% a year on its cost.
Where it stops. The rate cut per point is the lender's to quote and often shrinks after the first point. The tool counts nominal dollars, holds the rate steady, and assumes you make every scheduled payment. It leaves out the tax treatment of points, which it states but does not compute, and what the cash could have earned elsewhere, other than the loan's own rate. Everything it leaves out.
What you will borrow, after the down payment. The points are priced on this figure.
The rate the lender quotes before any buydown. It is on the loan estimate.
Lenders sell points in eighths. Zero shows the plain loan.
In percentage points, from the lender's rate sheet. The cut often shrinks after the first point, so ask for the whole schedule.
One percent of the loan is the convention. The loan estimate shows the dollar figure.
Until you sell or refinance. Points that pay for themselves after you have left were a loss.
- Monthly saving from the points
- $66.12
- The payment falls from $2,594.39 at 6.75% to $2,528.27 at 6.5%
- Position if you keep the loan 7 years
- $3,039 ahead
- Payments made plus the balance still owed, plus what the points cost you, on each loan at that point
- Yearly return the points earn to that year
- 14.6%
- Above the 6.75% the same cash would have earned paying down the loan, so the points were the better use of it
| Points | Rate | Monthly payment | Cost to you | Paid for themselves after | Position at 7 years |
|---|---|---|---|---|---|
| 0 points | 6.75% | $2,594.39 | $0 | Nothing to repay | Even |
| 0.5 points | 6.625% | $2,561.24 | $2,000 | 48 months | $1,521 ahead |
| 1 point | 6.5% | $2,528.27 | $4,000 | 48 months | $3,039 ahead |
| 1.5 points | 6.375% | $2,495.48 | $6,000 | 48 months | $4,553 ahead |
| 2 points | 6.25% | $2,462.87 | $8,000 | 48 months | $6,064 ahead |
Every count up to 4 points pays for itself within 7 years. With the same cut for every point, every count pays for itself in the same month, so more points buy a larger saving, not a sooner one. If the lender's cut shrinks after the first point, lower the cut to see the later points on their own terms.
The plain rule is that points are bought with cash at closing and repaid with the interest they save. The saving arrives a little each month for as long as you keep the loan, and it stops the day you sell or refinance. A stay shorter than the break-even hands the cash to the lender for nothing. A stay well past it earns a return on the cash that no bank account matches. The verdict is the position at the year you expect to leave, not the month the points pay for themselves.
This is an assumption tool, and the rates, the buydown terms, and the horizon are yours to set. It counts nominal dollars month by month and holds the rate steady. The rate cut each point buys is the lender's to quote, and it often shrinks after the first point. Points on a purchase loan are usually deductible in the year paid if you itemize, and points on a refinance are spread over the life of the loan. The tool states that and does not compute it. Nothing is discounted except in the return figure, and an early payoff or refinance forfeits the rest of the saving. Method reviewed September 7, 2026. Hypothetical; educational, not advice.
This is a simplified model, not your actual tax return or plan. It only knows what you type in, leaves out rules that may apply to you, and cannot weigh the other facts and trade-offs a real decision depends on. Before you act, talk with a professional who knows your whole situation.
Educational only, not investment, tax, or legal advice. Results are hypothetical estimates that vary with each use and over time and are not guaranteed accurate or complete. Using this tool creates no client relationship with Considerate Capital, and the site that linked here is not affiliated with it. By using it you agree to the tool terms.