1. What Are Refinance Points?

Refinance points are fees paid to a lender at closing in exchange for a reduced interest rate. Each point typically costs 1% of your loan amount and lowers your rate by about 0.25%.

2. How the Calculator Works

The calculator uses the break-even formula:

Where:

• Points Cost — Total cost of the points paid at closing (USD)
• New Savings — Monthly savings from the reduced interest rate (USD/month)

Explanation: This calculation tells you how many months it will take for your monthly savings to equal the upfront cost of the points.

3. Importance of Break Even Calculation

Details: Knowing your break-even point helps determine if paying points makes financial sense based on how long you plan to keep the mortgage.

4. Using the Calculator

Tips: Enter the total cost of points in USD and your expected monthly savings. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: When does it make sense to pay points?
A: Typically only if you plan to stay in the home longer than the break-even period.

Q2: How much does each point reduce the interest rate?
A: Generally 0.25% per point, but this can vary by lender and market conditions.

Q3: Are points tax deductible?
A: Points paid when refinancing are usually amortized over the life of the loan, not fully deductible in the year paid.

Q4: What's a good break-even period?
A: Many experts recommend paying points only if the break-even is less than 3-5 years.

Q5: Should I pay points if I might move soon?
A: Probably not, unless you're certain you'll stay past the break-even point.