Discount points calculator

A discount point is an upfront fee paid at closing, typically 1% of the loan amount, in exchange for a lower interest rate for the entire life of the loan. It is essentially prepaying interest to reduce your rate, and the tradeoff only pays off if you keep the loan long enough.

It varies by lender and market conditions, but a common rule of thumb is about 0.25% per point. Some lenders offer more or less, and the reduction is not always perfectly linear across additional points, so always confirm the exact rate a lender is quoting for each point before deciding.

When you are confident you will keep the loan well past the break even point this calculator shows, often five years or more. If there is a real chance you will sell or refinance sooner, the upfront cost may never fully pay for itself.

No, discount points are optional and directly buy down your rate. Origination fees are a separate, often non negotiable, cost lenders charge to process the loan and do not affect your rate at all. Both show up in your closing costs but serve different purposes.

Often yes, for a primary residence purchase, discount points are frequently deductible in the year paid, subject to IRS rules and your specific situation. This calculator does not model tax effects, confirm your own eligibility with a tax professional before counting on this benefit.