Mortgage Points vs. Down Payment Calculator
Compare a lender’s discount-points quote with using exactly the same cash for a larger down payment. The result accounts for scheduled interest, estimated PMI, remaining balance, and the time you expect to keep the mortgage.
Lower-cost choice at holding periodBuy discount points
- Cost of discount points
- $3,600.00
- Loan amount with points
- $360,000.00
- Loan amount with larger down payment
- $356,400.00
- Monthly principal and interest with points
- $2,275.44
- Monthly principal and interest with larger down payment
- $2,311.60
- Initial payment difference including PMI
- -$34.66
- Financing cost with points through holding period
- $172,835.85
- Financing cost with larger down payment
- $173,815.26
- Net savings from the better choice
- $979.41
- Remaining balance with points
- $325,498.48
- Remaining balance with larger down payment
- $323,566.55
- Break-even time for points
- 5 years 7 months
Both scenarios use the same cash at closing: the discount-point cost becomes additional down payment in the comparison scenario.
Financing cost includes points, scheduled interest, and modeled PMI, but not scheduled principal because it becomes home equity.
PMI is estimated from the entered annual rate and stops when the scheduled opening balance reaches the selected LTV cutoff.
How to use this calculator
- Enter the purchase price and the down payment you would make before choosing between the two uses of extra cash.
- Enter the points quote and its interest rate, then the rate for the comparable no-points offer.
- Add your loan term, expected time before sale or refinance, and the PMI estimates if they apply.
- Read the holding-period financing costs, remaining balances, and the month when points first become cheaper, if they do.
How the points and down-payment comparison works
Mortgage points and a larger down payment both require cash at closing, but they work differently. A discount point is an upfront lender charge, usually expressed as a percentage of the loan amount, in exchange for a quoted lower rate. A larger down payment reduces the amount borrowed. This calculator holds the extra closing cash constant: if the points option costs $C, the other option puts that same $C toward the down payment.
Let H be the home price, D the base down payment, and q the points percentage as a decimal. The points loan is Lp = H − D, the points cost is C = Lp × q, and the larger-down-payment loan is Ld = Lp − C. For each loan, the principal-and-interest payment is payment = L × r ÷ (1 − (1 + r)^−n), where r is the annual rate divided by 12 and 100, and n is the number of monthly payments. At a zero rate, payment is simply principal divided by the number of payments.
Each month, the tool applies interest to the opening balance, subtracts the rest of the payment from principal, and records the new balance. It also estimates PMI as the original loan amount times the entered annual PMI rate divided by 12 while the opening balance is above the selected loan-to-value cutoff. It adds the points cost, interest, and modeled PMI through your holding month; scheduled principal is not treated as a financing cost because it becomes equity. The first month where the points option’s running financing cost is no higher than the larger-down-payment option is the break-even month.
What moves the result most
The quoted rate spread, points cost, and how long you will keep the loan usually matter most. A small rate reduction can take years to recover its upfront cost. The larger down payment starts with a smaller balance, which can lower its payment and may make PMI end earlier. The PMI difference is especially important when one scenario starts close to the cutoff.
What this estimate leaves out
This is a scheduled-payment comparison, not a lender payoff quote or tax calculation. It excludes property taxes, homeowners insurance, HOA charges, lender fees that are the same in both offers, prepayments, home-price changes, investment returns on unused cash, refinancing costs, and tax deductions. PMI eligibility, premiums, and cancellation rules also depend on the loan program and servicer, so use the actual loan estimate and servicing rules before deciding.
Worked example
Suppose a $400,000 home has a $40,000 base down payment. A one-point quote costs 1% of the $360,000 points loan, or $3,600. With the same closing cash, the larger-down-payment loan is $356,400. At 6.5% with points and 6.75% without points over 30 years, the tool compares the two monthly amortization schedules rather than dividing $3,600 by a rounded payment difference.
Using a seven-year holding period, it adds 84 months of interest and the selected PMI to each option, then reports the remaining balances separately. That matters because the lower-balance loan has more equity at sale or refinance even if its rate is higher. Change the PMI rates to zero when mortgage insurance does not apply.
Common questions
Is it better to buy mortgage points or make a larger down payment?
It depends on the actual rate-and-points quote, the loan balances, PMI, and how long you will keep the mortgage. Points can win when the lower rate has enough time to recover its upfront cost. A larger down payment can win when you expect an early sale or refinance, or when it reduces PMI sooner.
Why is this break-even different from points cost divided by monthly savings?
Payment-only break-even ignores that the two options start with different loan amounts when the same cash is used. This calculator tracks monthly interest, the remaining balance, and PMI rather than treating every payment dollar as financing cost. Those differences can move the break-even month substantially.
Does a larger down payment help eliminate PMI sooner?
Usually, a lower starting balance reaches a chosen loan-to-value threshold earlier under the same payment schedule. Actual PMI cancellation and termination rules vary by loan type, servicer, and applicable law. Use the PMI cutoff here as a planning estimate, not as a confirmation of when a servicer will remove PMI.
How does selling or refinancing early affect discount points?
If you sell or refinance before the break-even month, there has been less time for the lower rate to recover the points cost. The calculator compares costs only through the holding period you enter and caps it at the loan term. Update that estimate if your move or refinance plans change.
Does one mortgage point always reduce the rate by 0.25 percentage points?
No. A point generally costs 1% of the loan amount, but the rate reduction depends on the lender, loan program, market, credit profile, and other pricing adjustments. Use the paired rate-and-points quotes from your lender instead of assuming a fixed rate reduction.
Are mortgage discount points tax deductible?
Tax treatment depends on the purpose of the loan, how the points are paid and reported, and your individual tax situation. This calculator does not estimate deductions or after-tax costs. Ask a qualified tax professional how the rules apply to your return.