Refinance + Discount Points Breakeven Calculator
Example: Current mortgage balance: 320000 $ · Current interest rate: 7.25 %/yr · New base rate (no points): 6.75 %/yr · Remaining term on current loan: 27 yrs · Closing costs (no points): 5000 $ · Discount points to buy: 1 pts · Rate reduction per point: 0.25 % · How long you plan to stay: 10 yrs
| Net savings over planned stay | $10,477 |
| Breakeven (months) | 52.68 |
| Monthly payment savings | $156 |
| Total upfront cost (closing + points) | $8,200 |
Worked example
Refinancing a $320,000 balance from 7.25% to 6.5% (6.75% minus one point at 0.25%/pt): monthly savings are about $182. Upfront cost = $5,000 closing + $3,200 for one point = $8,200. Breakeven = 45 months (3.75 years). Over a 10-year stay, net savings total $13,640 after recouping the upfront cost. If you plan to sell in 3 years, skip the point — you never break even.
Frequently asked questions
What exactly is a discount point?
One discount point equals 1% of the loan amount paid upfront at closing in exchange for a lower interest rate — typically 0.25% per point, though this varies by lender and market. Points are prepaid interest and may be tax-deductible in the year paid.
Should I pay points if I might refinance again in a few years?
Probably not. Points only make sense when you stay past the breakeven date. If there is a reasonable chance rates fall and you refinance again within 3–5 years, the upfront cost of points is unlikely to pay off in time.
Are closing costs and points tax-deductible?
Mortgage interest and points paid on a purchase loan are generally deductible in the year paid for primary residences. Points paid on a refinance must typically be deducted over the life of the loan. Consult IRS Publication 936 or a tax advisor for your situation.