How this number is made
One point is 1% of the loan, paid up front, usually in exchange for a lower rate. The break-even is the up-front cost divided by the monthly savings. If you sell or refinance before that month, the points were a loss.
- Get both payments from the lender, with and without points, and subtract.
- Points here are discount points, not the origination fee, unless the fee is what you are trying to recover.
Formula
Cost = loan × points ÷ 100. Break-even months = cost ÷ monthly savings.
Worked example
With the figures already in the form, months to earn the points back is 75.0.
Questions
Are points tax deductible?
On a home you buy to live in, discount points are often deductible in the year you pay them, subject to the usual mortgage-interest limits. On a refinance they are often spread over the loan. This page does not compute the deduction.
What if the savings is zero?
Then there is no break-even. You paid for nothing.