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Mortgage Points Calculator

Discount points are an upfront fee which homeowners can pay to access lower mortgage rates. This calculator helps you discover if you should consider paying points on your home loan & calculate how quickly the points will pay for themselves.

Input Information
Loan Information
Amount : ($)
Interest Rate : (%)
Interest Rate with Points : (%)
Length : (Yrs)
Additional Information
Points : (%)
Your Savings Rate : (%)
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Straight to the Point Valuations

There are two types of points you can pay on your mortgage loan: Discount points, which are a form of pre-paid interest, or points that are charged for the origination of the loan. Determining whether you "should" pay points on your loan depends on what your financial goals are and how the points will affect the other terms of the loan, such as the interest rate or the other closing costs.

Discount Points

Mortgage Discount Points.Discount points are usually paid to reduce the amount of interest you pay on the loan. Every point on the loan is equal to 1 percent of the total loan cost. Depending on the loan, you may be able to pay up to 4 points. For example, 1 point on a $200,000 loan would be $2,000. If you paid 4 points, you would pay $8,000.

The amount you can save on your interest rate by paying for points will vary by lender. However, for each loan point you purchase, you can typically reduce the interest rate on your loan by 1/8 percent or 1/4 percent.

Take the example of the $200,000 house: If you have a 30-year fixed-rate loan with a 4.5 percent interest rate, your basic monthly mortgage payment would be $993.10. However, if you pay two points and your interest rate drops to 4 percent, your monthly payment would be $954.83.

Not only can paying points save you money every month, but it can also save you thousands in interest over the life of the loan.

However, if you do not plan to stay in your home over the full life of the loan, you need to carefully evaluate your potential savings. Though you will pay less each month, you will also pay more up front. You should stay in the home long enough to recoup your investment through your monthly savings, or you may end up losing money by paying points.

Origination Fees

Some lenders charge points to cover the expense of originating the loan. Some loans may charge fees in place of some closing costs. If you pay points in place of some closing costs, you can deduct the fees on your taxes, providing you a cost savings at the end of the year. However, if the points cover fees that would normally be charged during closing, you can not deduct them.

If you are able to deduct the points on your taxes, there is an advantage to paying points for origination fees. If you are not able to deduct the charges, you should analyze your statement carefully to be sure that you aren't paying more in origination and closing costs than you need to pay. Work with your broker to get a proper understanding of all the fees.

Calculating Points

Using the above calculator can help you to determine whether paying points on your mortgage is really worth it to you to help you meet your financial goals. You can use the calculator to learn just how much you can expect to save both on your monthly mortgage payment and during the life of the loan. Experiment with different point values to see how you can maximize your savings. Keep in mind how long you plan to stay in the home when making your decision. If you only plan to be in your home for five years or so, you may consider how you can put the money toward other investments that may have higher yield than what you can expect to save on interest.

 

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