Mortgage Calculator – With & Without Points

Mortgage Points are mostly calculated based on the total loan amount, and a 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 reduce its interest rate and hence the monthly installment further; he has to conduct a cost-benefit analysis and make decisions accordingly.

How to Calculate using Mortgage Points Calculator?

Mortgage Points Calculator Examples

Example #1

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

  • 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

  • Calculate the amount of upfront payment, which would be the percentage of the loan amount, and multiply the same by the number of points the borrower has chosen to pay upfront. Now, enter the loan amount first, which is the principal amount: Multiply the principal by the rate of interest applicable without points. We need to compound the same by rate until the loan period. We now need to discount the above result obtained in step 3 by the following: After entering the above formula in excel, we shall obtain installments periodically. Repeat steps from 2 to step 5 but this time with the interest rate applicable with points. Now, subtract values arrived in step 6 and step 7 that shall give you the monthly savings amount.

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

You are required to calculate Mortgage points to benefit from 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, the number of payments required to be paid is 12*25, which is 300 equal installments.And lastly, the interest rate is 8.75% fixed, which shall be calculated monthly, which is 8.75%/1 two, 0.73%, and 8.25%/1,2, which is 0.69%.

  • Upfront Payment Calculation:

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

Upfront Payment Calculation:

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

  • Without Points:

= [110,0000.73%(1+0.73%)^300]/[(1+0.73%)^300–1]

Without Points:

= 904.36

  • With Points:

= [110,0000.69%(1+0.69%)^300]/[(1+0.69%)^300–1]

With Points:

= 867.30

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

= 904.36 – 867.30

Benefits per month: EMI without points – EMI with points

= 37.06

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

Example #2

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

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

We need to calculate the EMI amount with points and without points interest rate. The number of remaining installments is ten 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

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

= [80,0000.66%(1+0.66%)^120 ]/[(1+0.66%)^120–1]

Without Points:

= 965.98

= [800,0000.61%(1+0.61%)^120]/[(1+0.61%)^120–1]

With Points:

= 939.62

= 965.98 – 939.62

Benefits per month: EMI without points – EMI with points

= 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.

Hence, it doesn’t affect if he buys four mortgage points; in effect, he suffers a loss, so he should avoid buying four.

Conclusion

If the borrower can afford to purchase the mortgage points, he needs to figure out if the deal is worth it, or he can take a financial advisor’s help. 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.

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

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