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Financing guide · Rate buydown strategy

Discount Points & Permanent Rate Buydowns

Discount points let you pay cash upfront to permanently lower your mortgage rate for the life of the loan. One point costs 1% of the loan amount and typically lowers the rate by about 0.25% (it varies by lender and market). The math is simple: divide the point cost by your monthly savings to get the break-even in months. On a $600,000 loan, one point costs $6,000 and a 0.25% lower rate saves roughly $95 to $100 a month, breaking even in about 5 years. Points pay off if you will keep the loan past the break-even; skip them if you plan to sell or refinance sooner. Seller-paid points cost you nothing, and buyer-paid points may be tax-deductible. Permanent points are different from a temporary 2-1 buydown, which lowers the rate only for the first year or two.

Pay points now to lock a lower rate for the life of your loan, do the math to know if it pays off. Straight answers below, and a calculator that runs your numbers with today's averages.

Run your numbers

Purchase price$1,000,000
Down payment (0% allowed)20% · $200,000
Discount Points est. payment$4,991/mo

Principal & interest at 6.375% (avg 6/24/2026) over 30 years on $800,000. Taxes, insurance, and any mortgage insurance or program fees not included. Informational only, not a commitment to lend.

How it works

At closing

Pay the points

One point = 1% of loan amount. Pay in cash or roll into the loan. Your lender confirms the rate reduction (typically ~0.25% per point).

Day one of the loan

Your rate is locked

The lower rate applies immediately and stays for the entire 30 years (or whatever term). No rate adjustments, no surprises, ever.

Month to month

You save $40-50+

Your monthly payment is lower. After break-even (13-5 years in this example), all savings are pure profit. Sell or refinance before break-even, and you don't recover the full cost.

Why it wins

1

Do the break-even math first.

Points only make sense if you stay past the break-even date. A typical buyer breaks even in 5-7 years; if you think you'll sell sooner, skip points and take a slightly higher rate.

2

Seller-paid points are a steal.

If your seller credits points as part of the deal, take it every time. You get a permanent rate reduction for zero out-of-pocket cost.

3

Compare points to other costs.

Instead of paying down payment, closing costs, or mortgage insurance, some buyers prefer to invest in points for a smaller monthly payment for the long term. It's a strategy trade-off.

4

Permanent points beat temporary buydowns long-term.

A 2-1 buydown saves money for 2 years only; discount points save it every month for 30 years. For long-term owners, points are the better math.

The numbers

1 pt = 1%

of the loan amount

$6,000 on a $600,000 loan, for roughly a 0.25% lower rate (varies by market)

~5 yrs

Typical break-even

a point saving about $95/mo on a $600k loan pays for itself in roughly 60 months

Sell soon?

Then skip points

if you will not keep the loan past break-even, points rarely pay off

$0

Seller-paid points

a seller credit can buy your rate down at no cost to you

Ask your lender: every lender prices points differently, so get quotes from multiple sources. The rate reduction per point (0.125% to 0.25%) varies day to day and by loan program.

Who it fits

Long-term homeowners who want to lock the lowest possible rate, and buyers whose sellers are paying points as part of the deal.

  • Long-term homeowners who plan to stay 10+ years and want to lock the lowest possible rate.
  • Buyers with cash reserves who prefer to invest in a lower monthly payment rather than other down-payment strategies.
  • Refinancers taking advantage of a rate dip and willing to pay points to capture long-term savings.
  • Buyers whose sellers are paying points as part of the deal, free rate reduction with no out-of-pocket cost.
  • Anyone who wants certainty: a permanent fixed rate with no adjustments, no caps, no surprises.
  • Borrowers comparing discount points to temporary buydowns and mortgage insurance to make the right trade-off.

Straight answers

One point equals 1% of your loan amount. Pay it upfront in cash at closing, and your lender permanently lowers your rate by roughly 0.25% (the exact reduction varies by lender, rate, and loan program).

One point on a $600,000 loan costs about $6,000. On a $500,000 loan, it's $5,000. You pay the cost at closing, and it can often be rolled into the loan if you prefer not to bring cash.

Calculate the break-even: divide the point cost by your monthly savings at the lower rate. If you save $95/month and the point costs $6,000, break-even is 63 months (5 years). Buy points only if you plan to stay past that date.

Yes, under IRS rules. Points on a loan for your principal residence can be deducted in full in the year you pay them (if you meet requirements like using the cash method, and the points match what's standard in your area). Refinance points, second-home points, and points on non-principal loans are deducted ratably over the loan term. Consult your tax advisor to confirm deductibility.

If seller-paid points are written into the deal, you get the permanent rate reduction at no cost to you. This is different from a temporary buydown, the rate stays reduced for the full 30 years.

Discount points lock a lower rate for the entire life of the loan. A temporary 2-1 buydown (common with builder financing) lowers the rate for the first 2 years only, then it jumps back to the full note rate. Permanent points cost more upfront but save money over decades. Temporary buydowns cost less and are often paid by the builder or seller.

You lose the benefit of points you paid on the original loan (they don't transfer). On a refinance, you would pay new points if you wanted to buy down the new rate. This is why points make sense only if you plan a long hold, usually 10+ years or more.

Yes, some lenders allow it, though this is rare and increases your loan amount. Rolling $6,000 in points into a $600,000 loan means you now owe $782,750 and pay interest on top of the point cost. It is usually not worth it; if you can't afford the points at closing, consider a no-points option instead.

Your loan officer

Brett Hickman

Home First Financial

Brett Hickman

Mortgage Loan Originator · NMLS #2010859

+19493508005

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