What Is a Rate Buydown?
A rate buydown means paying the lender money upfront, in the form of discount points, in exchange for a lower interest rate on the loan. One point typically costs 1% of the loan amount and knocks roughly 0.25% off the rate, though the exact trade varies by lender and loan program.
It sounds like a simple trade: pay now, save every month after. The catch is that the upfront cost only pays for itself after enough months of lower payments accumulate. If you refinance or sell before that breakeven point, you lose money on the points.
This matters more than usual right now. Freddie Mac's Primary Mortgage Market Survey put the 30-year fixed-rate mortgage at 7.03% for the week ending September 24, 2026, up from 6.95% the week before and the highest print of the current cycle (Freddie Mac PMMS). At levels like that, a lot of buyers are being quoted points by loan officers as a way to soften the payment. Whether it is worth it depends entirely on your numbers, not the sales pitch.
The Math: What One Point Actually Buys You
Take a $400,000 purchase with 20% down, financed with a $320,000 loan on a 30-year fixed:
| No Points | 1 Point | |
|---|---|---|
| Rate | 7.03% | 6.78% |
| Upfront cost | $0 | $3,200 |
| Monthly P&I | $2,136 | $2,082 |
| Monthly savings | -- | $54 |
| Breakeven | -- | ~59 months (4.9 years) |
The rate reduction assumption (0.25% per point) is a common industry average, not a guarantee. Lenders price points differently based on the loan program and market conditions, so always get the actual quote before running the numbers on a real deal (CFPB: mortgage points explained).
In this example, the buyer needs to hold the loan for almost five years before the point pays for itself. Hold it four years and sell or refinance, and the $3,200 was money spent on nothing. Hold it eight, and it was one of the better moves available.
Where Breakeven Timing Actually Matters
Breakeven math is not the same for every kind of deal. Run it through the Mortgage Calculator with your own loan amount, rate, and point cost before deciding, but here is the general pattern by strategy:
| Strategy | Typical hold before refi/sale | Points generally make sense? |
|---|---|---|
| Long-term rental buy-and-hold | 7+ years | Often yes |
| BRRRR (planning a cash-out refi in 6-12 months) | Under 1 year | Rarely |
| Fix and flip | 3-9 months | Almost never |
| Owner-occupant / house hack, staying put | 5+ years | Often yes |
The short version: if you already know you are refinancing or selling within the next couple of years, points are close to a guaranteed loss no matter how attractive the lower rate looks on paper. If the plan is to hold the loan for the better part of a decade, the math tilts the other way.
Common Mistakes
- Assuming the 0.25%-per-point rule holds everywhere. Get the lender's actual rate sheet. Some quotes buy down less than that per point, especially further from par.
- Ignoring the time value of the upfront cash. $3,200 spent today is not free money; it is capital that could have gone toward a down payment on the next deal or sat in reserves.
- Running the breakeven off the sticker rate instead of the actual loan estimate. Points, lender credits, and rate all move together on the same quote. Compare the full Loan Estimate, not a rate a loan officer mentioned on the phone.
- Forgetting seller-paid or builder-paid buydowns are a different animal. Those can change the math in the buyer's favor since the buyer is not the one writing the check, but temporary buydowns (2-1, 3-2-1) revert to the note rate after a year or two and need their own breakeven analysis.
Try It Yourself
Plug your actual purchase price, down payment, and a quoted points-and-rate combination into the Mortgage Calculator to see your real monthly payment difference and how long you would need to hold the loan to come out ahead.