Before You Pay Points, Know This number.

Your Breakeven Point Could Save (or Cost) You Thousands.

One of the most misunderstood mortgage strategies is paying discount points to obtain a lower interest rate.

While a lower rate can reduce your monthly payment, the real question is whether you'll remain in the home long enough to benefit from the upfront investment.

Here's a simple framework for calculating your break-even point:

Step 1: Determine the Cost of the Points

One discount point typically costs 1% of the loan amount.

Example:
• Loan Amount: $400,000
• Cost of 1 Point: $4,000

Step 2: Calculate Monthly Savings

Compare the monthly payment with points versus without points.

Example:
• Payment without points: $2,500
• Payment with points: $2,400
• Monthly Savings: $100

Step 3: Calculate the Break-Even Point

Break-Even Point = Cost of Points ÷ Monthly Savings

$4,000 ÷ $100 = 40 Months

In this scenario, the borrower must keep the mortgage for at least 40 months before the lower payment offsets the upfront cost.

This analysis is critical because many homeowners refinance, relocate, or experience life changes before reaching the break-even point.

The goal shouldn't be to obtain the lowest interest rate possible.

The goal should be to maximize long-term financial benefit based on your expected time horizon.

Every mortgage decision should start with the math.