Several questions on this SE have asked whether one should pay points (or even what they are). All of these questions appear to only look at the nominal cost, not the inflation-adjusted costs.

Is it reasonable to look at the present value of the interest (e.g. in 2017 dollars), instead of the "total interest paid" (in whatever-year dollars), when deciding what the break-even point for paying cash upfront to reduce the interest rate?

2 Answers 2


The questions you linked all look at the break-even time, meaning how long will it take to recoup the cost of reducing the future interest. In those analyses, using the nominal value of future interest payments is appropriate. Plus for most people, the calculation is much easier that trying to understand present value, and it probably won't change the answer significantly (does it matter if your break-even time is 24 months or 24 1/2 months?)

If, instead of looking at break-even time, you wanted to compare the NPV of those payments, then yes, you would look at the present value of those payments against the initial cost.

However, using the inflation rate might not be appropriate either - it depends on what you plan to do with the interest savings. Will you be investing the savings? If so, then use your expected rate of return for your investments, since that's the opportunity cost you're losing by paying extra interest.


I think it is more than reasonable. In my opinion, calculating the present value of both options is a good way to make the choice. Using this calculated value to determine the break-even point would be an accurate method.

In the end, you should use the method that you understand.

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