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By Alex Diaz · How we calculate this
A discount point costs 1% of your loan amount and typically buys about a 0.25 percentage point rate cut, though lenders price this differently depending on the day's market and your loan program. On a $400,000 loan, that's roughly $4,000 to shave a 7% rate down to 6.75%, and whether that trade is worth it comes down almost entirely to how long you plan to keep the loan.
These key factors affect mortgage rate buydown affordability
How points translate to rate reduction
The 1%-for-0.25% ratio is a rule of thumb, not a fixed rate. Some lenders offer a bigger rate cut per point when the market is volatile, others less. What doesn't change is the math underneath it: you're prepaying interest today in exchange for a lower rate every month going forward, which only wins if you keep the loan long enough for the monthly savings to add up past what you paid at closing.
Your breakeven timeline
Divide what the points cost by what they save you each month and you get the breakeven point. A $4,000 point that trims your payment by $65 a month needs about 62 months, just over five years, before it's paid for itself. Sell or refinance before that and the points were a loss, which is exactly why lenders steer borrowers who expect to move within a few years away from buying points at all.
Permanent vs. temporary buydowns
Not all buydowns work the same way. A permanent buydown lowers the rate for the entire loan term, while a temporary one, a 2-1 buydown, say, only discounts the payment for the first year or two before it steps back up to the full note rate. Builders and sellers sometimes fund the temporary kind as a closing incentive rather than the buyer paying for it directly, which is worth asking about before assuming the cost falls on you. Confuse the two and the payment jump when the discount expires can catch a household off guard.
How to use your results
- Compare the buydown cost against what you'd pay in extra interest without it over your expected time in the home.
- Ask your lender for the exact rate reduction per point since it varies by loan program and market pricing.
- Factor in whether a seller or builder credit could cover some or all of the buydown cost instead of your own cash.
Ways to make a mortgage rate buydown more affordable
- Negotiate a seller or builder credit at closing to cover part or all of the points instead of paying cash.
- Buy fewer points and put the difference toward a larger down payment, which also lowers your rate and your loan balance.
- Shop multiple lenders since the rate reduction per point can vary meaningfully between them.
- Skip the buydown if you expect to sell or refinance within the breakeven window and bank the cash instead.
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