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Should I Pay Points for a Lower Interest Rate?

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Description
This calculator figures the breakeven point for the points to be paid. This is the time it would take for the savings of lower monthly payments to make up for the upfront point(s) paid. It would then depend on how long you intend to stay at your home or what your monthly payment requirements are in order to decide whether or not to pay the point(s).
Should I Pay Points for a Lower Interest Rate?
Loan Information
Loan Amount ($)  Glossary of Terms
Length of Loan (Yrs)  Glossary of Terms
Interest Rate without Points (%)  Glossary of Terms
Interest Rate with Points (%)  Glossary of Terms
Additional Information
Points  Glossary of Terms
Annual Savings Rate (%)  Glossary of Terms

Result
Monthly Payment without Points: $1,100.65
Monthly Payment with Points: $1,048.82
Monthly Savings: $51.83
Cost of Points: $1,500.00
Savings Rate of Return 5.00%
Monthly Income from Investment: $6.25
True Monthly Savings: $45.58
Breakeven Point: 2 Year(s) 8 Month(s)

Glossary of Terms
Loan Amount: Money borrowed that is usually repaid with interest to purchase property. Return to Top
Length of Loan: The number of years required to pay off the principal and interest of the loan. Return to Top
Interest Rate without Points: No interest charges are paid up front when the borrower closes the loan. The interest charges are included in the loan amount (e.g. If the charges are 1 point, the $100,000 mortgage would become $101,000). With a higher loan amount, the monthly payments will be higher. Return to Top
Interest Rate with Points: Interest Charges paid up-front when a borrower closes a loan. A point is equal to 1 percent of the loan amount (e.g. 1.5 points on a $100,000 mortgage would cost the borrower $1,500). By paying more points at closing, the borrower reduces the interest rate of his loan and thus future monthly payments. Return to Top
Points: A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent (e.g. If the charges are 1 point on a $100,000 loan, the fee would be $1,000). Return to Top
Annual Savings Rate: The rate of interest you would have earned if you invested your money in an one year bank term deposit. Return to Top

Disclaimer: We cannot guarantee the accuracy of this calculator. You should check with your finance provider before entering into any contracts.