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Can someone explain why lenders tell me that one point (at, say $3000) saving $20 on each mortgage payment will pay for itself in 7 years? By my math, I’d need 12 years before that point starts paying off.

Here’s my math:

c = the cost of one point
s = savings on monthly payment
12 = months in a year
y = time to break even

y=(c/s)/12

So on a 300,000 loan, if a point takes you from 6.8% to 6.7%, you’re looking at a difference in mortgage payments of $19.94. It will take you 150.44 payments before you’ve paid back your original $3000 investment. That magic point comes after 12.5 years.

Or is my math way off?

Is there some other magic to that equation?

I’m not taking into account lost interest on that $3000, but that would only stretch out the time you’d have to hold a mortgage to see any advantage, right?

PS. If I’m being dense, please do try to be nice about it.