A rate buy-down means paying money at closing to get a lower interest rate on your mortgage. That money buys discount points. Done right, it lowers your payment for as long as you keep the loan. Done at the wrong time, it costs more than it saves.
What a discount point is
One discount point costs 1% of the loan amount. On a $360,000 loan, one point is $3,600.
How much a point lowers your rate depends on the lender and the day's pricing. A quarter of a percentage point per point is a common rule of thumb, but it moves. The only reliable number is the one on your Loan Estimate, so compare the rate with and without points on the same day.
Permanent vs. temporary buy-downs
- Permanent buy-down. You pay points and the lower rate lasts for the life of the loan.
- Temporary buy-down. The payment is lower for the first year or two (a 2-1 or 1-0 buy-down), then rises to the full note rate. Sellers often pay for these as a concession.
If you plan to keep the home and the loan for years, a permanent buy-down usually does more for you. A temporary buy-down helps with the first years' budget but doesn't change the long-term rate.
The break-even: when points pay off
Divide what the points cost by what they save each month. The answer is how many months it takes to get your money back.
| Rate without points | 6.75% · $2,335/mo |
| Rate with 1 point | 6.50% · $2,275/mo |
| Cost of 1 point | $3,600 |
| Months to break even | $3,600 ÷ $60 ≈ 61 months |
If you'll keep the loan well past five years, the point is worth it. If you might sell or refinance sooner, it probably isn't.
Who pays for the points
You can pay for points yourself, negotiate for the seller to pay them as a concession, or use a lender credit. With Savant, there's a fourth option: buy with a Savant agent and finance with Savant Lending, and up to 2% of the purchase price goes toward buying down your rate. On a $450,000 home, that's up to $9,000. [Wording pending compliance.]
Key takeaways
- One point costs 1% of the loan amount.
- What a point buys varies by lender and day, so compare Loan Estimates.
- Divide the cost by the monthly savings to get your break-even.
- Points make sense when you’ll keep the loan past the break-even.
This article is general information, not a loan offer or financial advice. Rates, points and their effect vary by lender, loan program and market conditions.