A mortgage rate buydown sounds like a no-brainer: pay some money upfront, get a lower interest rate, save thousands over the life of your loan. But here’s what the mortgage industry doesn’t emphasize—most people who pay for buydowns never recoup their investment. They refinance too soon, sell the house, or simply miscalculate how long it takes to break even. Before you write that check at closing, you need to understand when a rate buydown actually makes financial sense and when it’s just prepaying interest you’ll never benefit from.
What a mortgage rate buydown actually costs you
When you buy down your mortgage rate, you’re paying “discount points” at closing. Each point typically costs 1% of your loan amount and reduces your interest rate by roughly 0.125% to 0.25%, depending on the lender, loan type, and current market conditions. On a $400,000 mortgage, one point costs $4,000.
The math seems straightforward until you realize the break-even calculation isn’t as simple as dividing the point cost by monthly savings. You need to account for the opportunity cost of that money. If you invested that $4,000 instead of using it to buy down your rate, it could grow at 7-10% annually in a diversified portfolio. Your buydown needs to beat that return to make sense.
According to Freddie Mac research, the average homeowner stays in their home for about 13 years, but refinances or sells much sooner—often within 5-7 years. If your break-even point is 6 years and you move in 5, you’ve lost money on the buydown.
The break-even calculation nobody does correctly
Here’s the calculation most borrowers skip. Let’s say you’re offered a choice: 6.5% with no points, or 6.25% with one point ($4,000) on a $400,000 loan.
At 6.5%, your monthly principal and interest payment is approximately $2,528. At 6.25%, it drops to about $2,463. That’s a savings of $65 per month.
Simple division says $4,000 ÷ $65 = 61.5 months, or just over 5 years to break even. But this ignores what that $4,000 could have earned invested elsewhere. With a conservative 6% annual return, you’d need to factor in roughly $240 per year in lost investment gains. Now your real break-even extends to nearly 7 years.
And there’s another factor: the time value of money. That $65 monthly savings in year one is worth more than $65 in year ten due to inflation. A proper net present value calculation often pushes break-even points out even further than most borrowers realize.
When a buydown makes clear financial sense
Despite the complexity, there are situations where buying down your rate is the right call:
You’re certain you’ll stay long-term. If you’re buying your “forever home” in a community where you plan to retire, a 10+ year horizon makes buydowns more attractive. The longer you hold the mortgage, the more you benefit from the lower rate.
The seller is paying for points. In buyer’s markets, sellers sometimes offer to pay for rate buydowns as an incentive. If someone else is covering the cost, your break-even is day one. This is essentially free money—take it.
You’re maximizing your debt-to-income ratio. A lower monthly payment might qualify you for a larger loan or help you meet DTI requirements. If the buydown is the difference between approval and denial, the math changes entirely. Understanding what nobody tells you about debt-to-income ratios for mortgages can help you decide if this strategy makes sense for your situation.
Current rates are historically high. When rates are elevated compared to long-term averages, there’s a reasonable chance you’ll refinance within a few years when rates drop. In this scenario, permanent buydowns make less sense—but temporary buydowns (discussed below) might work perfectly.
When a buydown is likely a waste of money
You might move within 5-7 years. Job uncertainty, growing family, desire for a different neighborhood—if any of these apply, your break-even horizon becomes a gamble. Most people underestimate how likely they are to move. If you’re unsure about your timeline, you should first consider whether buying a house when you might move in 3-5 years even makes sense.
Rates are already low by historical standards. If you’re locking in at 4% or below, you’re unlikely to refinance. But you’re also not saving as much in absolute dollars with a buydown because your baseline payment is already relatively low.
You have high-interest debt elsewhere. Paying $4,000 to save $65/month on your mortgage while carrying $4,000 in credit card debt at 22% APR is financial malpractice. Pay down the expensive debt first.
Your emergency fund is thin. That buydown money might be better held in reserve. Homeownership comes with unexpected costs—HVAC failures, roof repairs, plumbing disasters. Liquidity has value that doesn’t show up in a rate comparison spreadsheet.
Temporary vs. permanent buydowns: a critical distinction
There’s another option many buyers overlook: temporary rate buydowns, often called 2-1 or 3-2-1 buydowns. These structures reduce your rate for the first few years of the loan, then it adjusts to the permanent rate.
With a 2-1 buydown, your rate might be 2% below market in year one, 1% below in year two, then adjust to the full rate in year three. The cost is typically lower than a permanent buydown, and it can make sense if you expect your income to rise or rates to fall.
Temporary buydowns became popular during high-rate environments because they’re often paid for by sellers or builders trying to move inventory. According to the Consumer Financial Protection Bureau, borrowers should carefully review the terms of any temporary buydown to understand exactly when and how payments will increase. If you’re offered a temporary buydown at no cost, it’s almost always worth taking—you get guaranteed savings in the early years with no downside.
However, be careful about budgeting. If you can only afford the home at the temporarily reduced payment, you’re setting yourself up for payment shock when the rate adjusts. Underwrite yourself at the full rate, then treat the early savings as a bonus.
The decision framework
Before paying for a mortgage rate buydown, answer these questions honestly:
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How long will you realistically keep this mortgage? Not how long you think you’ll live in the house—how long until you refinance or sell. Be conservative.
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What’s your true break-even point? Run the numbers including opportunity cost, not just simple division.
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Is someone else paying? Seller-paid buydowns fundamentally change the calculation.
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What else could this money do? Compare the buydown’s return to paying down other debt, investing, or maintaining liquidity.
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Can you afford the home at the higher rate? If you’re relying on the buydown to make payments manageable, you may be buying too much house.
If your break-even is under 4 years and you’re confident about staying put, a buydown likely pays off. If break-even exceeds 7 years or you have any doubts about your timeline, keep your cash.
The bottom line on rate buydowns
A mortgage rate buydown isn’t inherently good or bad—it’s a financial tool that works in specific situations. The mortgage industry often pushes buydowns because they generate fee revenue at closing, not because they’re optimal for borrowers.
Do the math yourself. Factor in opportunity cost. Be honest about how long you’ll actually keep the mortgage. And remember that flexibility has value—the $4,000 you spend on points today is $4,000 you can’t use for repairs, investments, or emergencies tomorrow.
For most buyers in most situations, keeping the cash and accepting the slightly higher rate is the smarter choice. The exceptions are clear: you’re staying forever, someone else is paying, or you need the lower payment to qualify. If none of those apply, your buydown is probably benefiting your lender more than you.