Example Cases on the Operation of Discount Points
Case 1: Small-Savings Loan
Loan Amount: $300,000
Interest Rate Without Points: 3.5%
Interest Rate With 1 Point: 3.25% (Cost: $3,000)
Monthly Savings: $42
Break-Even Period: 71 months
Result: Worthwhile if staying for more than six years.
Case 2: Large-Investment Loan
Loan Amount: $500,000
Interest Rate Without Points: 4.0%
Interest Rate With 2 Points: 3.5% (Cost: $10,000)
Monthly Savings: $142
Break-Even Period: 70 months
Result – Good if staying for over five years.
Case 3: Short Term Stay
Loan Amount I borrowed: $250,000
Interest Rate Without Points: 3.75%
Interest Rate With one Point: 3.5% (Cost:$2,500)
Monthly Savings:$34
Break-Even Period: 74 months
Outcome – Not worth it if you plan to sell within six years.
In every scenario where somebody buys discount points, it reduces their monthly mortgage payment, but you have to calculate how long you’re going to stay with the mortgage to determine whether it’s a good financial decision or not based on when the break-even point is.