How Do You Buy Down Your Interest Rate? Points, Cost and Break-Even

You buy down your interest rate by paying discount points at closing. One point costs 1% of your loan amount, and it lowers your rate for the whole life of the loan. Whether it pays off depends on how long you keep the loan, so find your break-even month before you pay.

What does it mean to buy down your interest rate?

Buying down your rate means paying more cash up front to get a lower interest rate. The most common way is with discount points, also just called points.

There are two kinds of buydowns, and they work very differently:

• Permanent buydown (points): You pay points at closing. Your rate is lower for the full loan term. That is what this guide covers.

• Temporary buydown: Your payment is lower for the first year or two, then the full rate starts. The most common version is the 2-1 buydown, which we explain in What Is a 2-1 Buydown and Is It Worth It?.

If someone offers a "buydown," ask which kind.

How much does one discount point cost?

The Consumer Financial Protection Bureau (CFPB) explains points in plain terms on its page How should I use lender credits and points (checked Sept. 27, 2026). One point equals 1% of your loan amount. On a $100,000 loan, one point is $1,000. On a $400,000 loan, it is $4,000.

Points do not have to be whole numbers. The CFPB gives examples like 0.5 points or 1.375 points. You pay them at closing, and they are added to your closing costs.

You will find points on page 2, Section A of your Loan Estimate and your Closing Disclosure. The CFPB says that, by law, points listed there must be tied to a lower interest rate. If a fee is called "points" but does not lower your rate, ask the lender why.

How much does one point lower your rate?

There is no fixed rule. The CFPB says the drop in rate for each point depends on the lender, the kind of loan and the overall mortgage market.

The CFPB's own example uses a $180,000 loan at 5.0% with zero points. Paying 0.375 points, or $675, lowers the rate to 4.875%. That saves about $14 a month.

You also cannot look up an "average" point price. Freddie Mac's survey no longer reports fees and points, a change it made in November 2022. So the only way to know your price is to ask each lender for a written quote.

How do you figure your break-even point?

Your break-even point is the month when your savings catch up with what you paid for the points. The math is simple:

Cost of the points ÷ monthly savings = months to break even

To show how it works, we start with a real rate. The 30-year fixed rate averaged 7.03% in Freddie Mac's Primary Mortgage Market Survey as of Sept. 24, 2026. The drop per point in this example is made up for the math only. Your lender's pricing will be different.

EXAMPLE ONLY: $400,000 loan, 30-year fixed. Starting rate 7.03% (Freddie Mac PMMS average as of Sept. 24, 2026). Assumes each point lowers the rate by 0.25 percentage point — an assumption for the math, not a market price. Principal and interest only.

In this example, one point takes about 60 months, or 5 years, to pay for itself. Two points take about 61 months.

Now see what happens if you move or refinance early. With one point, after 3 years you would have saved $2,408.40, but you paid $4,000. You would be $1,591.60 behind. After 10 years, you would have saved $8,028.00, or $4,028.00 more than you paid.

This simple math leaves out what your cash could have earned elsewhere and any tax effect.

When is buying points worth it?

Points tend to make sense when all of these are true:

1. You plan to keep the loan past your break-even month. The CFPB says points can be a good choice if you plan to keep your loan for a long time.

2. You still have cash left over. Do not drain your emergency fund or moving money to pay points.

3. You do not expect to refinance soon. A refinance ends the loan, and the points you paid stay paid.

The CFPB also suggests a smart test. Ask a loan officer for two options, with and without points. Then compare the total cost over the shortest, longest and most likely time you expect to keep the loan. You can also review your options with a HUD-certified housing counselor.

When should you skip points?

Skip them, or buy fewer, if you might move in a few years, if cash is tight, or if you are hoping rates drop so you can refinance. Nobody can promise rates will fall, but if you are counting on it, points are a poor fit.

There is also the opposite move. The CFPB explains that lender credits work like points in reverse. You take a higher rate, and the lender gives you money toward closing costs. That can help if cash is your biggest worry.

Can a builder or seller pay for your points?

Yes. On new construction, builders often offer money you can use toward closing costs, and that can include points. Offers change often, so call 561-704-0091 for today's numbers.

There are limits. Fannie Mae's Selling Guide (section B3-4.1-02, checked Sept. 27, 2026) says that when a temporary or permanent buydown is paid for by an interested party, such as the builder or seller, the cost counts toward its limits on those contributions. For a principal residence, the cap is 3% of the price or appraised value (whichever is lower) when your loan-to-value is above 90%, 6% at 75.01% to 90%, and 9% at 75% or less.

That means points, a temporary buydown and closing cost help may all come out of the same pot. Ask your lender to show you how they fit under the cap.

Are discount points tax-deductible?

They can be. IRS Topic 504 (checked Sept. 27, 2026) says points are a form of prepaid interest. If you itemize, points to buy your main home may be deductible in the year you pay them when certain rules are met. The IRS also says points the seller pays for your loan can be treated as paid by you, as long as you subtract them from your home's cost basis. Tax rules are personal, so check with a tax professional.

What this means for new-construction buyers

Builder incentive dollars can often be used more than one way, and each choice helps you at a different time.

• Points lower your payment for the full loan. Best if you plan to stay.

• A temporary buydown lowers your payment for the first years only.

• Closing cost help lowers the cash you bring to the table.

Ask the builder's lender and at least one outside lender to price each option in writing. Compare the payment you will live with for years, not just the first one.

National House Search is builder-neutral. We can help you line up offers from different builders side by side, so you can see which one saves you the most over the time you plan to stay.

Common Questions

Ready to take the next step?

Call 561-704-0091 to talk with a National House Search specialist, or Schedule a visit.

Related reading: What a 2-1 buydown is and when it is worth it · Buying a new-construction townhome for the first time · Condo vs. townhouse vs. single-family home

This is general information, not financial, tax or legal advice. Figures checked September 27, 2026.