How to use
- Enter the loan the points are charged on.
- Enter the points. One point is 1, not 0.01.
- Enter the rate without points and the rate with points, and the term in years.
- Press Calculate. The hero is the dollar cost. Read the months line before you treat the lower rate as cheaper.
How it's calculated
Cost = loan × points ÷ 100. Each payment uses the standard amortizing formula at its own rate, for the same term and the same loan.
Monthly savings = payment without points − payment with points. Months to cover = cost ÷ monthly savings, when the savings are positive. Taxes that might change the value of the points are not applied.
Worked example
One point on a $200,000 loan costs $2,000. At 6 percent versus 5.75 percent for 30 years, the payments are about $1,199.10 and $1,167.15. The difference is about $31.96 a month, so the $2,000 takes about 62.6 months to cover. That is a bit over five years, and only if you keep the loan and the rate.
Assumptions
The same loan amount and the same term at both rates. No tax deduction, no seller credit, and no change in mortgage insurance. The refinance calculator is for a new loan that also changes the balance or the closing costs in a different way.
FAQ
Is a point always 1 percent?
On this page, yes. Type 1.5 if the quote is one and a half points.
What if the lower rate saves nothing?
The months line says there are no monthly savings. A higher rate with points does not pay for itself through the payment.
Does this include taxes?
No. A deduction would change the after-tax cost. This page is pretax.
How is this different from the refinance page?
Refinance starts from closing costs and two payments you can build from different balances. This page is specifically the cost of points on one loan and the payment drop from a lower rate.