Mortgage Points: Price the Rate Reduction

A point prices cash, not the rate cut

One discount point equals one percent of the loan amount. The rate reduction is separately priced and depends on the offer; it is not automatically one percentage point. Lender credits can make the opposite trade-off by reducing upfront costs in exchange for a higher rate.

Consumer Financial Protection Bureau [1]

Use matching offers

Obtain a zero-point quote and a points quote for the same principal, term and loan type. Identify other fee differences before attributing the entire payment change to points. A lower rate from a different lender may reflect several pricing differences rather than the point charge alone.

The calculator accepts the two note rates and point amount directly. It never assumes a fixed rate discount per point. For a $280,000 loan, 0.75 points costs $2,100. That arithmetic is exact, but the associated rate benefit still needs a quote.

Work through a simple recovery period

If the selected $2,100 cost reduces the monthly payment by $70, simple recovery is 30 months. That is an illustrative cash-flow comparison, not a promised offer. If the loan ends after 18 months, only $1,260 of those monthly reductions has occurred.

A smaller installment also changes principal repayment, so payment recovery is not the same as interest-cost recovery. The calculator separately compares accumulated interest through the chosen horizon after subtracting the upfront point cost. Read both measures before deciding.

Make uncertainty visible

Choose a short holding period, a central estimate and a longer period. The loan might end because you move or refinance. A point purchase that only works after many years depends on keeping that financing long enough.

The tool assumes the upfront cash could otherwise earn no return and excludes tax effects. If retaining the money has meaningful value for your household, a small modeled advantage may not settle the choice. Keep reserves and other debt costs in view rather than optimizing this loan in isolation.

Keep APR and payment arithmetic separate

APR reflects certain borrowing charges beyond the interest rate. It is a useful additional comparison measure, but the monthly payment uses the note rate. Entering APR into the payment formula can produce a payment the lender never quoted.

Consumer Financial Protection Bureau [2]

Recheck the final combination

Before closing, confirm the point charge, rate, term and loan amount together. A changed balance changes the dollar cost of a point; a changed rate changes the savings. The result should describe the final offer, not an earlier version.

If the offer instead provides a lender credit, compare its higher rate and lower upfront charge over the same horizon. The same basic principle applies: one part of the price moves today while another accumulates over time.

Questions, answered

Sources

1. How should I use lender credits and points?. Consumer Financial Protection Bureau. 2023-10-19. Accessed 2026-09-09.
2. Mortgage interest rate and APR. Consumer Financial Protection Bureau. 2026-08-28. Accessed 2026-09-09.