Should you buy mortgage points or increase down payment? Mortgage points are used to reduce the interest rate at the time of closing the mortgage contract. To purchase these tax deductible points you will have to pay 1 percent of the original mortgage balance. Alternatively, you can forgo points and use that much money to increase your down payment. This calculator shows a comparison between these two options and tells you the benefit or loss of undertaking point purchase.
Term length of the mortgage to be repaid.
Value of the mortgage assuming you don’t spend money on discount points purchase. So, the amount will be lower as you are able to increase down payment.
Annual rate of interest considering you will not buy mortgage points.
Years in home
Expected life of the underlying home before you need to go for refinance.
Principal and interest
Monthly dollar spent on the mortgage as principal and interest (PI) payment.
Annual rate of interest if you purchase mortgage points.
Number of mortgage points you want to purchase. Choose a number that is useful to realize the marginal benefit.