What Is Mortgage Points Break-Even?
One discount point costs 1% of the loan amount and typically reduces the interest rate by 0.25%. On a $200,000 loan, one point costs $2,000 and might drop your rate from 7.25% to 7.0%, saving $33/month. Break-even: $2,000 / $33 = 61 months (about 5 years). If you plan to hold the loan for 7+ years, paying points saves money. If you might refinance or sell within 5 years, skip the points.
For real estate investors, this calculation is especially important because investment property hold periods vary widely. A BRRRR investor who refinances after 12 months should never pay points — they won't hold long enough to break even. A buy-and-hold investor planning a 15-year hold should seriously consider points — the savings compound to $5,000-$10,000+ beyond the break-even point.
Mortgage points break-even analysis calculates how many months you must hold a loan before the interest savings from paying upfront points exceed the cost of those points — a critical decision for investors who may sell or refinance before the break-even date.
At a Glance
- What it is: The time required for point-purchased rate savings to exceed the upfront cost
- Why it matters: Determines whether paying points is profitable based on your planned hold period
- Key metric: Break-even months = Point cost / Monthly savings (typically 36-72 months)
- PRIME phase: Research
How It Works
Calculate the cost per point. One point = 1% of loan amount. On a $250,000 loan, one point = $2,500. Two points = $5,000. Points are paid at closing and appear on your Loan Estimate and Closing Disclosure.
Calculate the monthly payment savings. Compare monthly payments at the original rate vs. the bought-down rate. Example: $250,000 at 7.25% = $1,706/month. $250,000 at 7.0% (after one point) = $1,663/month. Monthly savings: $43.
Divide cost by monthly savings. $2,500 / $43 = 58 months (4.8 years) to break even. After month 58, every month is pure savings. If you hold for 10 years (120 months), your net savings = (120 - 58) × $43 = $2,666 beyond the break-even point.
Factor in the opportunity cost of the point money. That $2,500 spent on points could earn 4-5% in a savings account ($100-$125/year) or contribute to a down payment on your next property. The true break-even is slightly longer when accounting for the lost return on the point money — typically add 6-12 months.
Real-World Example
Robert in Cleveland, OH. Robert was closing on a $195,000 rental property. His lender offered two options: 7.25% with no points, or 6.75% with 2 points ($3,900). The monthly payment difference: $1,298 vs. $1,265 = $33/month savings with points. Break-even: $3,900 / $33 = 118 months (9.8 years). Robert planned to hold for 15+ years, so the math worked: after the break-even point, he'd save $33/month for the remaining 20+ years — totaling $7,920+ in net savings. However, his investment partner Diego, who was doing a BRRRR on a similar property with a planned 12-month refi, would never break even. Diego chose zero points and paid the higher rate for his short-term hold.
Pros & Cons
- Simple calculation provides clear go/no-go decision on points
- Long-term holders can save $5,000-$15,000+ over the loan life
- Points paid on investment properties are tax-deductible over the loan term
- Lower rate improves monthly cash flow immediately after break-even
- Ties up cash at closing that could fund other investments
- Break-even is nullified if you sell or refinance before the break-even date
- Points on investment properties must be deducted over the loan life, not all at once
- The opportunity cost of point money isn't reflected in simple break-even calculations
Watch Out
- Never pay points on a BRRRR or short-term hold. If your strategy involves refinancing within 1-3 years, you will almost certainly not break even. Points only make sense for 5+ year holds.
- Recalculate with opportunity cost. The simple break-even ignores what the point money could earn elsewhere. Add 10-20% to the break-even period for a more accurate analysis.
- Consider partial points. You don't have to buy full points. Half a point (0.5% of loan amount) typically reduces the rate by 0.125%, with a shorter break-even period of 24-36 months.
The Takeaway
Mortgage points break-even analysis is a 2-minute calculation that can save or waste thousands of dollars. Divide the point cost by the monthly payment savings, and compare the result to your planned hold period. Hold longer than the break-even → points save money. Sell or refi sooner → points waste money. For most investment property investors, the answer depends entirely on strategy: buy-and-hold investors should strongly consider points; value-add and BRRRR investors should avoid them.