Discount Points Calculator: Does Buying Down the Rate Make Sense?

How this discount points calculator works

Enter the loan amount and term, then the rate and points for each offer. Offer A is the offer without points, and Offer B buys the rate down. The calculator runs both loans month by month and adds up the interest each one costs. The break-even is the first month the interest saved by Offer B’s lower rate covers the extra you paid for its points.

Why your time in the loan matters

Points are paid up front, and the lower rate pays you back a little each month. If you sell or refinance before the break-even point, you spent more on points than you saved. Most loans do not run the full term, so the break-even should fall well inside the time you realistically expect to keep the loan. Rates and plans change, so leave yourself some room.

How extra payments change the answer

Extra payments toward principal pay the loan off sooner. That leaves less time for a lower rate to save interest, so the break-even moves later. With large extra payments, the loan can be gone before the points ever pay for themselves. If you plan to pay extra, enter only the amount you are sure you will pay every month.

Common questions about discount points

Does buying down the interest rate make sense?

It depends mostly on how long you keep the loan. Points are paid up front and earned back through a lower rate, so they only pay off if the loan stays in place past the break-even point. Many people sell or refinance well before a loan is paid off, so be realistic about how long you will keep it.

How do you calculate the break-even on discount points?

This calculator adds up, month by month, the interest the lower rate saves, and compares it to the extra you paid for the points. The first month the savings catch up is the break-even. A simple shortcut divides the cost of the points by the monthly payment savings, which gives a slightly later answer.

Do extra payments change whether points are worth it?

Yes. Extra principal payments pay the loan off sooner, so there is less time for a lower rate to save interest. The more you prepay, the later the break-even, and with large extra payments the points may never pay off. Only count extra payments you are sure you will make.

What if I plan to refinance when rates fall?

Points you paid on the old loan do not carry over to a new one. If you expect to refinance within a few years, points are harder to justify, and a higher rate with a lender credit may cost less overall.

What is a good break-even period for discount points?

There is no single number. Shorter is better, and the break-even should be well inside the time you realistically expect to keep the loan. A break-even that falls after the point where you would likely sell or refinance usually means the points will not pay off.

How do I compare a lender credit?

Enter the offer with the credit as Offer A, using a negative number of points, and the offer without the credit as Offer B. The calculator then shows how long the lower rate takes to make up for giving up the credit.