1. What Are 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. Each point typically costs 1% of the loan amount and may lower the interest rate by 0.25%.

2. How Points Calculation Works

The calculator uses the simple formula:

Where:

• Loan Amount — Total mortgage amount in USD
• Points % — Percentage points being purchased (e.g., 1.0 for one point)

Explanation: Each point equals 1% of the loan amount, so purchasing points involves paying upfront fees to secure a lower interest rate over the life of the loan.

3. Importance of Points Calculation

Details: Calculating points cost helps borrowers understand the upfront investment required to lower their mortgage interest rate, allowing for better financial planning and break-even analysis.

4. Using the Calculator

Tips: Enter the total loan amount in USD and the points percentage you wish to purchase. The calculator will instantly show the total cost of purchasing those points.

5. Frequently Asked Questions (FAQ)

Q1: What is the typical cost of one mortgage point?
A: One point typically costs 1% of the loan amount. For a $300,000 loan, one point would cost $3,000.

Q2: How much does each point lower the interest rate?
A: Each point typically lowers the interest rate by 0.25%, though this can vary by lender and market conditions.

Q3: Are mortgage points tax deductible?
A: Points paid on a mortgage to purchase or improve your main home may be deductible in the year paid, subject to IRS rules and limitations.

Q4: When does it make sense to buy points?
A: Buying points makes sense if you plan to stay in the home long enough to recoup the upfront cost through lower monthly payments.

Q5: Can I buy fractional points?
A: Yes, points can be purchased in fractions, such as 0.5 points or 1.25 points, depending on the lender's offerings.