How Many Months To Recover Points Cost

This equation computes the number of months it will take to recover the cost of the points purchased.

INPUTS

• P - the original principal amount of the loan
• n - the term of the loan in years
• i - the interest rate as a percentage; i.e., enter 4.6 for a 4.6% interest rate
• points - the number of points purchased
• `"cost"_"points"` - total cost of the points purchased

NOTES

This equation will do an amortization and calculate the number of months it will take to recoup the cost if you buy points up front.  Points purchased will provide a lower interest rate applied to your monthly principal, which can possibly provide savings over the life of the loan.

Discount points are payments made up-front to obtain a lower interest rates. A lender can usually quote mortgage rates and provide payment information regarding zero, one, or two points. Buying a lower interest rate with discount points could be a cost effective way to lower the total mortgage cost. If you purchase points and they actually save you money, this equation pinpoints the point in the loan when you have saved more money than the cost of the points.

EXAMPLES

This equation is used to answer questions of the form:  If I buy points before closing, how many months will it take to recoup the expense?

Purchasing discount points allows the Homeowner to get a lower interest rate.  The 'points' are subtracted from the interest rate applied to the monthly principal balance.

EXAMPLE 1: If you have an interest rate of 6%,  and you purchase a "half of a point", (points = 0.5), the effective interest rate applied would be:   5.5%.