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Discount Points Versus Interest Rates Calculator
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Discount Point Mortgage Calculator

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Use our Discount Point Mortgage Calculator to determine if you should pay discount points to lower your interest rate. A discount point is an upfront fee that you can choose to pay to reduce your mortgage rate and monthly payment. If you decide to pay discount points you pay more in upfront closing costs but you save money because your mortgage payment is lower.
A discount point equals 1% of your loan amount and you can elect to pay fractions of a point or multiple points. For example, you can decide to pay .5 discount points (a half a point) or 2.5 discount points -- the choice is up to you. The more points you pay, the lower your mortgage rate.
You can use our calculator to compare multiple mortgages with different discount points and interest rates. The calculator shows you the total cost of the discount points, which you pay at closing, as well as your estimated monthly payment and total interest expense over your loan term.
The calculator identifies which mortgage offers the lowest combination or interest rate and discount points, the lowest monthly payment and lowest total interest expense. You can use this information to understand how long it takes you to recover the cost of the discount points. If your monthly payment savings is low, it can take a long time to recover your upfront cost, in which case paying points may not make sense. If you recoup your costs in a relatively short period of time, then paying points is good idea as long as you can afford the extra upfront expense.
We recommend that you use our Discount Point Mortgage Calculator to compare loans with different combinations of points and rates to decide if paying discount points is right for you.  We also offer a version of this calculator that does not require personal information.

When you provide valid personal info we may connect you with lenders which enables you to compare mortgage proposals and find the mortgage that is right for you. Click here for a version of this calculator that does not require personal info
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Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
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Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
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Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
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Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
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Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
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Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
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FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
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Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
While we pride ourselves on the quality and breadth of the FREEandCLEAR mortgage calculators please note that they should be used for informational purposes only. Our calculators rely on assumptions by us and inputs and assumptions provided by you, which may be inaccurate. The outputs from our calculators are estimates only and should not be used as the sole basis for making any financial decisions. Always consult multiple financial professionals when determining the mortgage size and program that is appropriate for you.

What Mortgage Borrowers Should Know About Discount Points


What is a Discount Point

A discount point is an optional fee that borrowers can elect pay to lower their mortgage rate.  One discount point costs the borrower 1.0% of the mortgage amount.  For example, one discount point on a $250,000 mortgage costs the borrower $2,500 ($250,000 * 1.0% = $2,500). Borrowers pay discount points to "buy down" or lower their mortgage rate.  Lenders usually offer borrowers the ability to pay discount points in half-point increments up to a certain limit so you can pay a half of a discount point, one discount point, one and a half discount points, and so on.  Use our Discount Point Mortgage Calculator to determine the total cost of discount points based on your loan amount.


What is a Discount Point Worth?

One discount point typically equates to a .250% reduction in interest rate.  For example, if a lender quotes you a 4.000% mortgage rate with no discount points, your mortgage rate if you decide to pay one discount point should be 3.750% and 3.500% if you decide to pay two discount points.  The more discount points you pay, the lower your mortgage rate should be and the lower your monthly mortgage payment should be.  Borrowers should make sure that each discount point they pay reduces their mortgage rate by at least .250%.  Additionally, borrowers should compare mortgage proposals with different interest rates and discount points for multiple lenders to find the loan with the best terms.  Comparing mortgage proposals also enables borrowers to verify that discount points are "worth" the same across multiple lenders are result in the same reduction in interest rate.


When You Should Pay Discount Points

Discount points are an upfront cost that you recover by paying a lower monthly mortgage payment which means you recover the cost of the discount points over time.  For example, you may decide to pay $3,000 for one discount point to reduce your monthly mortgage payment by $50, or $600 per year.  In that scenario, you recover the cost of the discount point in five years -- $3,000 (cost of discount point) / $600 (savings per year) = 5 years to recover the cost of the discount point.  As a general rule, because of the length of time it usually takes to recover the cost of discount points, you should only pay discount points if you plan to own the property you are financing for at least five years.  The amount of time it takes to recover the cost of discount points varies depending on your interest rate, mortgage amount and the number of discount points you pay but in general it does not make sense to pay discount points if you intend to sell your home and pay off your mortgage in less than five years.


Discount Points are 100% Optional for Borrowers

It is completely up to borrowers to decide if they want to pay discount points.  Although discount points are charged by the lender they are totally optional and borrowers ultimately decide if they want to pay them based on their financial objectives.  Discount points should not be confused with origination points or other mandatory fees lenders charge to process your mortgage.  Our Discount Point Mortgage Calculator enables you to understand the financial impact of paying discount points so you can make an informed decision.    


Discount Points May Be Tax Deductible

Because a discount point is effectively an upfront interest expense, the cost of points is usually tax deductible just like the interest you pay as part of your monthly mortgage payment.  Although the mortgage tax deduction varies depending on many factors including your loan amount and tax bracket, the ability to deduct all or part of the cost of discount points offers an extra financial benefit in addition to lowering your interest rate.  As with all tax matters, we recommend that you consult a tax professional or accountant to confirm how the mortgage interest deduction applies to you.

More FREEandCLEAR Mortgage Resources

Mortgage Guides

Should I Pay Mortgage Discount Points?

Review our in-depth explanation of mortgage discount points including an example that compares the monthly mortgage payment and total interest expense over the life of a loan for a mortgage with and without discount points


Mortgage Rates

Compare mortgage rates and fees from top lenders near you.  Comparing proposals from multiple lenders is the best way to save money on your mortgage


How Much Are Mortgage Closing Costs?

Review our comprehensive overview of mortgage closing costs including an informative example.  Understanding how much mortgage closing costs are may affect your decision to pay discount points

Ask a Mortgage Expert

Ask a Mortgage Expert

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What Are Discount Points: https://www.consumerfinance.gov/ask-cfpb/what-are-discount-points-and-lender-credits-and-how-do-they-work-en-136/

About the calculator developer

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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