Mortgage Points Calculator

Mortgage Calculator – With & Without Points

Mortgage Points are mostly calculated based on the total loan amount, and the single point is equivalent to 1% of the loan amount. The mortgage points calculator lets the borrower decide whether he should opt for an upfront payment and reduced its interest rate and hence would the monthly installment as well and further, he has to conduct a cost-benefit analysis and take decisions accordingly.


Wherein,
  • First Value is the loan amount
  • Second Value is the rate of interest per annum
  • Third Value is the number of period or frequency wherein loan amount is to be paid
The loan Amount
$
Rate of Interest per annum
%
Number of period or frequency wherein loan amount is to be paid

How to Calculate using Mortgage Points Calculator?

One needs to follow the below steps in order to calculate the Mortgage Points benefits.

  1. Calculate the amount of upfront payment, which would be the percentage of the loan amount, and multiply the same by a number of points the borrower has chosen to pay upfront.

  2. Now, enter the loan amount first, which is the principal amount:

    Mortgage Points calculator - Step1

  3. Multiply the principal by the rate of interest applicable for without points.

    Mortgage Points calculator - Step 2

  4. Now, we need to compound the same by rate until the loan period.

    Mortgage Points calculator - Step 3

  5. We now need to discount the above result obtained in step 3 by the following:

    Mortgage Points calculator - Step 4

  6. After entering the above formula in excel, we shall obtain installments periodically.

  7. Repeat steps from 2 to step 5 but this time with interest rate applicable with points.

  8. Now, subtract values arrived in step 6 and step 7 that shall give you the monthly savings amount.

You can download this Mortgae Points Calculator Excel Template here – Mortgae Points Calculator Excel Template

Mortgage Points Calculator Examples

Example #1

Karry had purchased the house with a Mortgage loan. The loan amount was $110,000, and it was taken for 25 years. Further, the rate applicable was 8.75%. Karry complained about the higher rate being charged as currently, the bank was offering fresh home loans at 8.50%.

The Manager of the bank told her that even she could be shifted to a rate of 8.25% if she opts for Mortgage points. On inquiry, she came to the that purchasing 1 mortgage point will equal 1% of the loan amount, and she has to purchase 4 mortgage points.

You are required to calculate Mortgage points to benefit out of this.

Solution:

  • We need to calculate the EMI amount with points and without points interest rate.
  • The number of installments is 25 years, but since it is monthly outgo hence the number of payments required to be paid is 12*25, which is 300 equally installments.
  • And lastly, the rate of interest is 8.75% fixed, which shall be calculated monthly, which is 8.75%/1,,2 which is 0.73%, and 8.25%/1,2, which is 0.69%.
  • Upfront Payment Calculation

Loan Amount x Upfront percentage x Number of points
Mortgage Points calculator - Example #1.png

$110,000 x 1% x 4 = $4,400

Now we shall use the below formula to calculate the EMI amount.

  • Without Points:

EMI = [P*R*(1+R)^N]/[(1+R)^N-1]
Mortgage Points calculator - Example #1 (without Points)

= [110,000*0.73%*(1+0.73%)^300]/[(1+0.73%)^300–1]

= 904.36

  • With Points:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Mortgage Points calculator - Example #1 (with Points)

= [110,000*0.69%*(1+0.69%)^300]/[(1+0.69%)^300–1]

= 867.30

  • Benefits per month: EMI without points – EMI with points

Mortgage Points calculator - Example #1 (Benefits).png

= 904.36 – 867.30

= 37.06

Therefore, 34.81 * 300 which shall equal to $8,354.29 less $4,400 which is net benefit of $3,954.29

Mortgage Points calculator - Example #1 (Net Benefits).png

Example #2

Mr. KJ has a current loan outstanding for $80,000, which he initially financed at 7.89%, and 10 years are yet left for the loan to be fully paid. Now Bank has recently launched for their existing borrowers to purchase mortgage points and reduced their interest rate and henceforth, monthly installment. The scheme detail is below:

Cost of Per Mortgage Points1%1%1%
Points Purchased148
Rate7.75%7.26%6.80%

Mr. KJ decides to purchase 4 mortgage points. Based on the given information, you are required to determine whether it was worth the deal?

Solution:

We need to calculate the EMI amount with points and without points interest rate. The number of remaining installments is 10 years, but since it is monthly outgo hence the number of payments required to be paid is 12*10, which is 120 equally installments, and lastly, the rate of interest is 7.89% fixed which shall be calculated monthly which is 7.89%/12 which is 0.66% and 7.26%/12 which is 0.61%.

  • Upfront Payment Calculation

Loan Amount x Upfront percentage x Number of points
Example #2(upfront payment)

$80,000 x 1% x 4 = $3,200

Now we shall use the below formula to calculate the EMI amount.

  • Without Points:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Example #2 (without points)

= [80,000*0.66%*(1+0.66%)^120 ]/[(1+0.66%)^120–1]

= 965.98

  • With Points:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Example #2 (with points)

= [800,000*0.61%*(1+0.61%)^120]/[(1+0.61%)^120–1]

= 939.62

  • Benefits per month: EMI without points – EMI with points

Example #2 (Benefits)

= 965.98 – 939.62

= 26.35

Therefore, 26.35 x 120 which shall equal $3,162.45 less $3,200 which is a net lossNet LossNet loss or net operating loss refers to the excess of the expenses incurred over the income generated in a given accounting period. It is evaluated as the difference between revenues and expenses and recorded as a liability in the balance sheet.read more of $37.55.

Example #2 (Net Benefits).png

Hence, it doesn’t affect if he buys 4 mortgage points, and in effect, he suffers a loss, and hence he should avoid buying 4 mortgage points.

Conclusion

If the borrower can afford to purchase the mortgage points, then he needs to figure out if the deal is worth it or else, he can take the help of a financial advisor. There is a general rule of thumb: the longer the loan the borrower keeps, the mortgage points will become more attractive. Also, one needs to calculate the payback periodPayback PeriodThe payback period refers to the time that a project or investment takes to compensate for its total initial cost. In other words, it is the duration an investment or project requires to attain the break-even point.read more of the upfront amount paid while making the decision.

Recommended Articles

This has been a Guide to Mortgage Points Calculator. Here we provide the calculator that is used to calculate EMI Amount with points and without points interest rate along with some examples. You may also have a look at the following useful articles –