Mortgage Points Calculator 2026: Buydown vs Points

Q: What are mortgage points and how do they work?

Mortgage points (discount points) are upfront fees you pay to lower your interest rate. 1 point = 1% of loan amount and typically reduces rate by 0.25%. Example: On $400K loan, 1 point = $4,000 upfront, saves ~$60/month ($21,600 over 30 years). Break-even: 67 months (5.6 years).

Q: What is the difference between mortgage points and a buydown?

Points = permanent rate reduction for life of loan. Buydown = temporary rate reduction (1-3 years). Example: 1 point on $400K = 0.25% lower rate forever. 2-1 buydown = 2% lower year 1, 1% lower year 2, then normal rate. Points better if staying 5+ years, buydown better if selling within 3 years.

Q: Are mortgage points worth it in 2026?

Points are worth it if you stay in home past break-even point (typically 5-7 years). With 2026 rates at 6.0-6.5%, buying 1-2 points to get 5.5-6.0% makes sense if staying 7+ years. Calculate: Point cost ÷ monthly savings = break-even months. If staying longer, buy points. If selling within 5 years, skip points.

Q: Can the seller pay for my mortgage points?

Yes! Seller can pay up to 6% of purchase price in concessions (includes points, closing costs). Example: $400K home = $24K max seller concessions. Use $8K for 2 points (0.5% rate reduction), $16K for closing costs. Negotiate this in offer - common in buyer's markets. Seller-paid points = free rate reduction!

Q: How many mortgage points should I buy?

Buy 1-2 points if staying 7+ years, 0 points if selling within 5 years. Calculate break-even: 1 point on $400K = $4,000 cost, saves $60/month, break-even = 67 months. 2 points = $8,000 cost, saves $120/month, break-even = 67 months. Most buyers buy 0-1 points. Never buy 3+ points (break-even too long).

💡 What Are Mortgage Points? (Simple Explanation)

📖 Simple Definition

Mortgage points (also called discount points) are upfront fees you pay to your lender to permanently lower your interest rate. Think of it as "buying down" your rate for the life of the loan.

The Math: 1 point = 1% of your loan amount. Typically, 1 point reduces your rate by 0.25% (though this varies by lender and market conditions).

Real Example: How Points Work

🏠 Example: $400,000 Loan at 6.5% Rate

❌ Without Points

Loan Amount: $400,000
Interest Rate: 6.5%
Monthly Payment: $2,528
Total Interest (30 years): $509,680
Upfront Cost: $0

✅ With 1 Point ($4,000)

Loan Amount: $400,000
Interest Rate: 6.25%
Monthly Payment: $2,462
Total Interest (30 years): $486,320
Upfront Cost: $4,000

💰 The Savings

Monthly Savings: $66/month ($2,528 - $2,462)
Total Interest Savings: $23,360 ($509,680 - $486,320)
Net Savings (after $4K cost): $19,360
Break-Even Point: 61 months (5.1 years)
ROI if staying 30 years: 484% ($19,360 profit on $4,000 investment)

Types of Points

1️⃣ Discount Points (What We're Discussing)

Purpose: Lower your interest rate permanently

Cost: 1 point = 1% of loan amount

Benefit: Typically 0.25% rate reduction per point

Tax Deductible: Yes, in year paid (for purchases)

2️⃣ Origination Points (Lender Fees)

Purpose: Lender's processing fee (NOT rate reduction)

Cost: 0.5-1% of loan amount (varies by lender)

Benefit: None—just a fee you pay

Negotiable: Yes! Ask to waive or reduce

⚠️ Critical Distinction

Discount points = Investment that lowers your rate (can be worth it)

Origination points = Junk fee that doesn't lower your rate (negotiate away!)

Bottom Line: When people say "mortgage points," they usually mean discount points—the upfront fee you pay to permanently lower your interest rate. This guide focuses on discount points and whether they're worth buying.

📚 Related Reading:

🧮 How Mortgage Points Work (Math Breakdown)

Let's break down the exact math behind mortgage points so you can calculate if they're worth it for your situation. This is the formula lenders use.

The Formula

📐 Point Cost Formula

1 Point Cost = Loan Amount × 1%

Example: $400,000 loan × 1% = $4,000 per point

📉 Rate Reduction Formula

1 Point = ~0.25% Rate Reduction

(Varies by lender: 0.125% to 0.375% per point)

⏱️ Break-Even Formula

Break-Even = Point Cost ÷ Monthly Savings

Example: $4,000 ÷ $66/month = 61 months (5.1 years)

Points Savings by Loan Amount (2026 Rates)

Loan Amount	Points Bought	Upfront Cost	Rate Reduction	Monthly Savings	Break-Even	30-Year Savings
$250,000	1 point	$2,500	0.25%	$41/mo	61 months	$12,260
$250,000	2 points	$5,000	0.50%	$82/mo	61 months	$24,520
$400,000	1 point	$4,000	0.25%	$66/mo	61 months	$19,760
$400,000	2 points	$8,000	0.50%	$131/mo	61 months	$39,160
$600,000	1 point	$6,000	0.25%	$98/mo	61 months	$29,280
$600,000	2 points	$12,000	0.50%	$197/mo	61 months	$58,920

💡 Key Insight

Notice the break-even point is consistent across loan amounts (61 months / 5.1 years). This is because both the cost and savings scale proportionally. The bigger the loan, the more you pay for points, but also the more you save monthly.

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🔄 Points vs Buydown: Critical Differences

People often confuse mortgage points with buydowns. They're similar but have one CRITICAL difference that affects your long-term savings.

📍 Discount Points

Type: Permanent rate reduction

✓ Duration: Entire loan term (30 years)
✓ Cost: 1 point = 1% of loan amount
✓ Rate Reduction: 0.25% per point
✓ Who Pays: Buyer at closing
✓ Tax Deductible: Yes (in year paid)

Best For: Buyers staying 5+ years who want permanent savings

📉 Buydown

Type: Temporary rate reduction

✓ Duration: 1-3 years only
✓ Cost: Varies by buydown type
✓ Rate Reduction: 1-2% first year, then increases
✓ Who Pays: Seller or buyer
✓ Tax Deductible: No

Best For: Buyers needing lower payments short-term (2-1 or 3-2-1 buydown)

Example: $400K Loan Comparison

Year	No Points/Buydown 6.5% Rate	1 Point 6.25% Rate	2-1 Buydown 4.5% → 5.5% → 6.5%
Year 1	$2,528/mo	$2,462/mo	$2,027/mo
Year 2	$2,528/mo	$2,462/mo	$2,271/mo
Year 3-30	$2,528/mo	$2,462/mo	$2,528/mo
Upfront Cost	$0	$4,000	$8,000
30-Year Savings	$0	$19,760	-$2,000

⚠️ Key Takeaway

Points = Long-term savings. Buydowns = Short-term relief. If you're staying 5+ years, points win. If you need lower payments now and expect income to increase, buydowns help. Never confuse the two!

🤔 Should I Buy Points? Decision Framework

Answer these 5 questions to know if buying points makes sense for YOU.

Question 1: How long will you stay in the home?

< 5 years

❌ Don't buy points
Won't reach break-even

5-7 years

⚠️ Maybe
Depends on other factors

7+ years

✅ Buy points
Maximum savings

Question 2: Do you have extra cash for closing?

No / Tight Budget

❌ Don't buy points
Keep cash for emergencies

Yes / Comfortable Reserves

✅ Consider points
Good use of extra cash

Question 3: Will you refinance in 3-5 years?

Likely to Refinance

❌ Don't buy points
You'll lose the benefit

Keeping Loan Long-Term

✅ Buy points
Full 30-year savings

✅ Buy Points If:

✓ Staying 7+ years in home
✓ Have extra cash after 6-month emergency fund
✓ Not planning to refinance soon
✓ Want to maximize long-term savings
✓ Can afford break-even period (5-7 years)

❌ Don't Buy Points If:

✗ Staying less than 5 years
✗ Tight on cash / need reserves
✗ Planning to refinance in 3-5 years
✗ Rates expected to drop significantly
✗ Better ROI elsewhere (e.g., paying off 20% credit card debt)

🎁 Seller-Paid Points (Free Rate Reduction!)

Here's a secret: You can get the seller to pay for your points, giving you a lower rate at ZERO cost to you. This is the best-kept secret in real estate.

How Seller-Paid Points Work

📋 The Strategy

1. Negotiate seller concessions - Ask seller to contribute 2-3% toward closing costs
2. Use concessions to buy points - Instead of covering fees, use money to buy down rate
3. Get lower rate for free - Seller pays, you save $50K+ over 30 years

Real Example: $400K Home Purchase

❌ Without Seller-Paid Points

Purchase Price: $400,000
Down Payment: $80,000 (20%)
Loan Amount: $320,000
Rate: 6.5%
Monthly Payment: $2,022
Total Interest (30 yrs): $407,920

✅ With Seller-Paid 2 Points

Purchase Price: $400,000
Down Payment: $80,000 (20%)
Loan Amount: $320,000
Rate: 6.0% (seller paid $6,400 for points)
Monthly Payment: $1,918
Total Interest (30 yrs): $370,480

💰 Total Savings: $37,440 over 30 years + $104/month lower payment

Your Cost: $0 (seller paid the $6,400 for points)

💡 Pro Negotiation Script

"I'd like to offer $400,000 with 3% seller concessions ($12,000) to cover closing costs and buy down my rate. This helps me qualify and makes the deal work for both of us."

Why it works: Sellers care about net proceeds. Whether they lower price $12K or give $12K concessions, it's the same to them. But for you, concessions let you buy points and save $50K+ long-term!

⚠️ 8 Mistakes That Cost $20K+

❌ Mistake #1: Buying Points When Staying < 5 Years

Cost: $4,000-$12,000. Solution: Only buy if staying past break-even (5-7 years).

❌ Mistake #2: Confusing Points with Buydowns

Cost: $10,000+. Solution: Points = permanent. Buydowns = temporary. Know the difference!

❌ Mistake #3: Not Calculating Break-Even

Cost: $5,000-$15,000. Solution: Always calculate: Cost ÷ Monthly Savings = Break-even months.

❌ Mistake #4: Using Emergency Fund to Buy Points

Cost: Financial stress. Solution: Only buy points with EXTRA cash after 6-month emergency fund.

❓ FAQ: 12 Most Asked Questions About Mortgage Points

1. What are mortgage points and how do they work?

Mortgage points (discount points) are upfront fees you pay to lower your interest rate. 1 point = 1% of loan amount and typically reduces rate by 0.25%. Example: On $400K loan, 1 point = $4,000 upfront, saves ~$60/month ($21,600 over 30 years). Break-even: 67 months (5.6 years). Points are a permanent rate reduction for the life of the loan.

2. What is the difference between mortgage points and a buydown?

Points = permanent rate reduction for life of loan. Buydown = temporary rate reduction (1-3 years). Example: 1 point on $400K = 0.25% lower rate forever. 2-1 buydown = 2% lower year 1, 1% lower year 2, then normal rate. Points better if staying 5+ years, buydown better if selling within 3 years or need lower initial payments.

3. Are mortgage points worth it in 2026?

Points are worth it if you stay in home past break-even point (typically 5-7 years). With 2026 rates at 6.0-6.5%, buying 1-2 points to get 5.5-6.0% makes sense if staying 7+ years. Calculate: Point cost ÷ monthly savings = break-even months. If staying longer than break-even, buy points. If selling within 5 years, skip points and invest cash elsewhere.

4. Can the seller pay for my mortgage points?

Yes! Seller can pay up to 6% of purchase price in concessions (includes points, closing costs). Example: $400K home = $24K max seller concessions. Use $8K for 2 points (0.5% rate reduction), $16K for closing costs. Negotiate this in your offer—common in buyer's markets. Seller-paid points = free rate reduction! This is the best strategy if seller agrees.

5. How many mortgage points should I buy?

Buy 1-2 points if staying 7+ years, 0 points if selling within 5 years. Calculate break-even: 1 point on $400K = $4,000 cost, saves $60/month, break-even = 67 months. 2 points = $8,000 cost, saves $120/month, break-even = 67 months. Most buyers buy 0-1 points. Never buy 3+ points (break-even too long, better to invest cash elsewhere).

Note: Full article includes 7 additional FAQ questions covering tax deductions, refinancing points, points vs down payment, negative points, and more. Total article length: 5,600+ words.

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