Conventional · Purchase · Illustrative example
How do points change a conventional purchase with 20% down?
A larger upfront payment may lower principal and interest, but the break-even period determines whether paying points fits your plans.
A 20% down payment gives this example an 80% loan-to-value ratio. Mortgage insurance and eligibility depend on the actual loan. For illustration, assume a primary single-family property and a 30-day lock. Actual lock pricing and eligibility vary.
What are the key numbers?
| Property value | $500,000.00 |
|---|---|
| Down payment or existing equity | $100,000.00 |
| Loan amount | $400,000.00 |
| Loan-to-value ratio | 80.0% |
| Loan term | 30 years, fixed |
How do the options compare?
| Measure | Option A | Option B |
|---|---|---|
| Interest rate | 6.75% | 6.5% |
| Points (negative means credit) | 0% | 1% |
| Points cost or credit | $0.00 | $4,000.00 |
| Monthly principal and interest | $2,594.39 | $2,528.27 |
Option B costs $4,000.00 more upfront and saves $66.12 per month in principal and interest. The simple break-even is 61 months.
How does the math work?
Loan-to-value is loan amount divided by property value. Points or credits equal the loan amount multiplied by the percentage. Monthly principal and interest uses the fixed-rate amortization formula. Simple break-even divides added upfront cost by monthly savings, rounded up to a whole month.
How sensitive is the payment to the rate?
Holding the balance and term constant, these illustrative rates change principal and interest only; points and fees may also change in actual offers.
| Rate | Monthly principal and interest |
|---|---|
| 6.5% | $2,528.27 |
| 6.75% | $2,594.39 |
| 7% | $2,661.21 |
When might the answer change?
Compare the break-even period with how long you expect to keep the loan, and ask for the full fee and credit details. Rates, points, fees, credits, loan eligibility, funding fees, taxes, insurance and actual closing dates vary. APR is not calculated because complete finance-charge inputs are not included.
Sources and limitations
Source for program context: LenderCity mortgage guide. Numbers are illustrative assumptions created for this example, not a lender quote. See the wholesale–retail spread methodology. LenderCity, Inc. · Company NMLS 193390.
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