Mortgage Points Calculator

- May 11, 2025
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Calculate whether buying mortgage points is worth it based on your loan details and how long you plan to keep the mortgage.

Mortgage points (or discount points) are fees you pay to your lender at closing in exchange for a reduced interest rate.

Loan Information

£

Points Information

1

Advanced Options

About Mortgage Points

Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called "buying down the rate," which can lower your monthly mortgage payments.

How Mortgage Points Work
  • Each point costs 1% of your mortgage amount. For example, one point on a £300,000 mortgage would cost £3,000.
  • The rate reduction varies by lender. Typically, one point reduces your interest rate by 0.25%, but this can vary.
  • Points are tax-deductible in the year you pay them if you itemise deductions (for primary residences).
When to Consider Buying Points
  • Long-term homeownership: If you plan to stay in your home beyond the breakeven point, points can save you money.
  • Fixed-rate mortgages: Points generally make more sense with fixed-rate loans than adjustable-rate mortgages.
  • Available cash: You need to have enough cash on hand to cover closing costs plus points.
Calculation Methodology

This calculator determines whether points are worthwhile by:

  1. Calculating your monthly payment with and without points
  2. Determining monthly savings from reduced interest
  3. Computing the breakeven point (when savings exceed the cost of points)
  4. Analysing total savings over your expected time in the home
  5. Considering the time value of money and potential tax benefits

Understanding Mortgage Points

Mortgage points, often called discount points, are fees paid upfront to your lender when closing on a home loan. By purchasing points, you can lower your interest rate, which in turn decreases your monthly payments. This option might be appealing if you want to reduce your long-term borrowing costs.

The Mortgage Points Calculator Explained

The Mortgage Points Calculator helps you determine if buying points is a smart Financial move for your situation. By entering details about your loan, like the amount and interest rate, along with how long you plan to stay in your home, you can see a clear picture of your potential savings. This tool makes it easy to weigh your options.

How to Use the Calculator

To get started with the Mortgage Points Calculator, you'll need to input some basic loan information. Here are the key details you'll provide:

  • Loan amount: The total you plan to borrow.
  • Loan term: The length of time you’ll take to repay the loan.
  • Base interest rate: The current interest rate offered without any points.
  • Expected years in home: How long you believe you’ll live in your new home.

Benefits of Buying Mortgage Points

Buying mortgage points can provide significant financial benefits if you plan your homeownership carefully. Consider these advantages:

  • Lower monthly payments: Reducing your interest rate can make your mortgage more affordable each month.
  • Long-term savings: If you stay in your home long enough to surpass the breakeven point, you’ll save money over the loan’s life.
  • Potential tax benefits: Points paid may be tax-deductible, depending on your situation.

When Should You Buy Points?

Deciding whether to purchase mortgage points depends on your individual circumstances. It’s typically beneficial when:

  • You plan to stay in your home for several years or longer.
  • You have the cash available to cover the upfront costs without straining your finances.
  • You prefer the stability of a fixed-rate mortgage.

Understanding the Breakeven Point

The breakeven point is when your savings from a lower interest rate equal the cost of buying points. By using the Mortgage Points Calculator, you can easily find out how long it will take to reach this point. Knowing this helps you make an informed decision about whether it's worth it to buy points.

Exploring the Results of Your Calculation

Once you enter your details and use the mortgage points calculator, it will generate a detailed analysis. You’ll see your best options for purchasing points, monthly savings, upfront costs, and the breakeven period. Additionally, you can compare different points options to understand how each affects your financial situation over time.

Wrapping Up Your Mortgage Decision

Using the Mortgage Points Calculator is a smart step towards making a well-informed mortgage decision. With all the insights it provides, you can confidently decide whether buying points is right for you, helping you save money and plan effectively for your homeownership journey.