What Is a Rate Buydown?
A discount point is 1% of your loan amount paid upfront at closing in exchange for a permanently lower interest rate. Typically, one point lowers your rate by 0.25%, though this varies by lender and market conditions.
On a $320,000 loan, one discount point costs $3,200 and reduces your rate from, say, 6.87% to approximately 6.62%.
The Break-Even Calculation
Monthly savings at 6.62% vs. 6.87% on $320K: approximately $52/month. Divide the upfront cost ($3,200) by the monthly savings ($52) = 61.5 months, or just over 5 years. If you stay in the home at least 5 years, buying points makes financial sense. If you sell or refinance before then, you lose money.
Temporary 2-1 Buydowns: A Different Tool
Increasingly popular in 2025–2026 are seller-funded 2-1 buydowns, where the seller pays a lump sum at closing to subsidize the buyer's rate for the first two years: 2% lower in year 1, 1% lower in year 2, then the permanent rate kicks in. This is a marketing tool, not a rate reduction — you still owe at the full rate starting year 3.
They can work well if you expect your income to rise, or if you plan to refinance before year 3. Be skeptical of builders pushing this tool aggressively — it often masks an overpriced home.
When Buying Points Makes Sense
Points make the most sense when: (1) you're buying your forever home or a long-term hold property, (2) you have cash available that isn't earning more than your effective savings rate elsewhere, and (3) rates are relatively high (as they are in 2026) and refinancing feels uncertain.
Points make the least sense when: you're in a starter home likely to sell within 3–5 years, you're cash-constrained after closing, or you're confident you'll refinance within 2–3 years.