Faro Labs / Tools / Mortgage points calculator
Mortgage points calculator
Buying down the rate is prepaying interest. See the monthly savings, the month you break even, and whether your actual holding period gets you there.
Keeping the loan 7 years clears the break-even, so the points net you $2,353 over that hold.
How points work
A discount point is one percent of the loan amount, paid at closing, in exchange for a permanently lower rate. The typical exchange rate is a quarter point of rate per point paid, but it drifts daily and by lender, which is why the number worth comparing isn't "how many points" but "how many dollars per quarter point of rate."
It's a horizon question, not a rate question
Points are prepaid interest. Pay $6,000 today to save $92 a month and you've made a loan to your lender that repays over 65 months. Keep the mortgage 15 years and it's clearly worth it; sell in four and you handed over $6,000 to save $4,400. Since the average mortgage in the U.S. is repaid or refinanced well before its term, break-evens beyond about five years deserve real skepticism.
Compare quotes on the same footing
Lenders quote rates at different point levels, so a "lower rate" often just means more points buried in the closing costs. Pull both numbers, rate and points, from every quote, run them here, and compare the total cost over the years you actually intend to hold rather than the rate on the front page.
Points questions
How much does one point lower the rate?
Roughly 0.25 percent is the common rule of thumb, but it varies by lender, loan type, and the day you lock. Ask for the actual rate sheet at zero, one, and two points. The marginal cost of each additional point often gets worse as you buy more.
Points or a bigger down payment?
A larger down payment shrinks the balance and may cancel mortgage insurance, which is often the better use of the same dollars: especially near the 20 percent threshold. Points only lower the rate. If you're already at 20 percent down and certain about a long hold, points become the more competitive option.
Do points make sense on a rental?
Sometimes, for a different reason than on a primary residence: a lower payment raises DSCR and cash flow every month, which can be what gets a deal financed or keeps it positive. Weigh that against the fact that investor loans get refinanced more often, which shortens the horizon the break-even depends on.
Every calculator
See what the rate does to the whole deal.
Faro runs a real address at your financing terms. Cash flow, DSCR, and the price that makes it work.
Estimates for analysis and educational use only: not financial, investment, tax, or legal advice. Verify every number independently before making a purchase decision.