Paying discount points. How do you decide if it makes sense?

[Phoenix-rising]

Is there some formula to determine whether it makes sense to pay for discount points on a mortgage? 

The loan principal is $241,000 for a 30 year fixed refinance. 

The scenarios I got were:

4.625% with no points

4.500% paying 0.500% or $1,205.00

4.250% paying 1.750% or $4,217.50

Is there a calculator or some guidelings to help decide whether it makes sense to buy points?

[ShanetheMortgageMan]

Additional amount paid (discount points) divided by monthly savings beween the two interest rate options = breakeven point.  If you will stay in the home/mortgage past the breakeven point then from an objective point of view you have come out ahead.  You can also add that your principal balance will decrease slightly faster at the lower interest rate, so there is some additional savings there but no clever forumula - just have to consult an amortization schedule for each rate and compare the principal balances on any given month.

Message Edited by ShanetheMortgageMan on 04-24-2009 07:22 AM