Mortgage Points and Rate Buydowns

Pay a little more up front to lower your rate — that's the pitch behind mortgage points and buydowns. Sometimes it's a smart move that saves you thousands. Other times you'd be paying for savings you'll never collect because you sold or refinanced first. The difference comes down to one number: your break-even point.

Quick answer

A discount point costs about 1% of your loan amount and permanently lowers your interest rate, usually by around a quarter percent each. A temporary buydown, like a 2-1, lowers your rate for the first year or two and then steps back to the full rate. Points pay off if you keep the loan past the break-even point — the month when your savings overtake what you paid. If you'll sell or refinance before then, skip them.

What you'll learn

What a discount point is and what it buys you
How temporary buydowns like the 2-1 work
How to calculate your break-even point
When paying for a lower rate makes sense and when it doesn't

Discount Points, Plainly

A discount point is money you pay the lender at closing to permanently lower your interest rate. One point costs 1% of your loan amount — on a $400,000 loan, that's $4,000 — and typically drops your rate by roughly a quarter of a percent. You can buy one point, half a point, or two; the more you pay, the lower the rate. The savings show up as a smaller monthly payment for as long as you keep the loan.

The Break-Even Test

Whether points are worth it comes down to simple division. Take what the points cost and divide it by your monthly savings. That tells you how many months it takes to earn the cost back. Here's a clean example:

You pay $4,000 for one point on a $400,000 loan.
That point lowers your payment by about $60 a month.
$4,000 divided by $60 is roughly 67 months — about five and a half years.
Stay in the home past that point and the rest is savings; leave before it and you lost money.

If you expect to keep the loan well past the break-even month, points usually pay off. If you might move or refinance sooner, they often don't.

Temporary Buydowns: The 2-1 and 3-2-1

A temporary buydown is a different animal. Instead of lowering your rate forever, it reduces it for the first year or two and then climbs to the full rate. A 2-1 buydown means your rate is two percent lower in year one, one percent lower in year two, and full from year three on. A 3-2-1 stretches that over three years. The cost is paid up front — often by a seller or builder as an incentive — and it gives you a softer landing while you settle into the payment.

When a Buydown Helps

Temporary buydowns shine in a couple of situations. They ease the first years of homeownership when money is tight after moving. And when a seller offers to pay for one, it can be more valuable than a price cut, because the up-front savings hit your payment right away. The thing to remember: you still have to qualify at the full rate, so plan for the payment in year three, not just the discounted one.

A buydown paid by the seller is found money — but only if you'd be comfortable with the full payment once the discount ends.

Figuring Out What's Right for You

Points and buydowns aren't good or bad on their own — they're good or bad for your situation. How long you'll keep the loan, whether a seller is chipping in, and where rates sit all change the answer. Bring us your scenario and we'll run the break-even both ways and show you the real numbers. It's a free review, in English or Spanish, and there's no pressure to do anything but understand your options.

Key takeaways

One discount point is about 1% of the loan and lowers your rate permanently.
A 2-1 buydown cuts your rate for two years, then returns to the full rate.
Break-even is the month your monthly savings equal what you paid up front.
Points reward staying put; they waste money if you sell or refinance early.

Common questions

How much does one mortgage point cost?

One point equals 1% of your loan amount. On a $400,000 loan, that's $4,000 paid at closing. In return, your rate usually drops by about a quarter of a percent, which lowers your monthly payment.

How do I know if buying points is worth it?

Divide what the points cost by your monthly savings to find your break-even month. If you'll keep the loan past that point, you come out ahead. If you might sell or refinance before then, you'd likely lose money.

What is a 2-1 buydown?

It's a temporary discount: your rate is two percent lower in the first year, one percent lower in the second, and the full rate from the third year on. It's paid up front, often by a seller, to ease your early payments.

Can the seller pay for my rate buydown?

Yes, and it's common. A seller or builder can cover a temporary buydown as an incentive. It can help you more than a similar price reduction because the savings hit your monthly payment right away.

Do I have to qualify at the lower buydown rate?

No — with a temporary buydown you qualify at the full note rate, not the discounted one. That's actually a protection: it confirms you can handle the payment once the discount period ends.