Permanent rate buydown: Pay points to lower your rate forever

What are discount points?

Discount points (sometimes called "mortgage points" or just "points") let you pay upfront to permanently reduce your interest rate. Unlike temporary buydowns that reduce your rate for just a few years, discount points lower your rate for the entire life of the loan.

One point equals 1% of your loan amount. So on a $400,000 loan, one point costs $4,000.

How much do points reduce your rate?

The exact reduction varies by lender and market conditions, but as a general rule:

1 point = approximately 0.25% rate reduction

So if you're quoted 6.5% with no points, paying 1 point ($4,000 on a $400,000 loan) might get you 6.25%.

Some lenders offer fractional points too. You might pay 0.5 points for a 0.125% reduction, or 2 points for a 0.5% reduction.

The break-even calculation

The key question: how long until your monthly savings pay back the upfront cost?

Example:

• Loan amount: $400,000
• Rate without points: 6.5% → $2,528/month
• Rate with 1 point ($4,000): 6.25% → $2,463/month
• Monthly savings: $65
• Break-even: $4,000 ÷ $65 = 62 months (about 5 years)

After 5 years, every dollar saved is pure benefit. Over a 30-year loan, you'd save about $19,400 in total interest.

When buying points makes sense

You're staying long-term. If you'll keep the mortgage for 7-10+ years, points almost always pay off. The longer you stay, the more you save.

You have extra cash. If you've saved more than you need for your down payment and closing costs, points can be a smart use of that money.

You want to maximize tax deductions. Points paid on a purchase are often fully deductible in the year you buy. Consult a tax professional for your situation.

You're prioritizing monthly cash flow. A lower payment forever can be worth the upfront investment, especially if you're planning for retirement or other long-term goals.

When points might not make sense

You might move or refinance soon. If you'll sell within 5 years or might refinance if rates drop, you probably won't reach break-even.

You need that cash elsewhere. If paying points means a smaller emergency fund or skipping other investments, the money might be better used elsewhere.

Your rate is already low. In a low-rate environment, the relative benefit of buying points is smaller.

You're stretching to afford the home. Don't sacrifice your financial cushion for a slightly lower rate.

Points vs. temporary buydowns

Both reduce your payments, but they work differently:

	Permanent Buydown (Points)	Temporary Buydown (2-1, 3-2-1)
Duration	Life of loan	2-3 years
Who pays	Usually buyer	Often seller/builder
Best for	Long-term ownership	Short-term cash flow relief
Rate reduction	~0.25% per point	1-3% initially, then full rate

If a seller is offering concessions, a temporary buydown might be a better use of those funds since you're not paying out of pocket. But if you're paying yourself and staying long-term, points often win.

Negotiating points

Points are negotiable. You can often get a combination of:

• No points - Accept the standard rate
• Paying points - Pay extra for a lower rate
• Lender credits - Accept a higher rate in exchange for the lender covering some closing costs

We'll show you the math on all these options so you can make the right choice for your situation.

How many points should you buy?

There's usually a point of diminishing returns. The first point often gives the biggest rate reduction; additional points may offer less benefit per dollar.

Most buyers who decide to pay points stick to 1-2 points. Going beyond that rarely makes sense unless you're extremely confident in your timeline.

Ready to run the numbers?

Whether points make sense depends entirely on your specific situation - loan amount, rate difference, and how long you'll keep the loan. We can show you the exact break-even point and total savings.

Get a quote or schedule a call to see if buying points is right for you.