Mortgage Rates
Should I Buy Down My Rate?
How permanent points and temporary buydowns differ, how to run the break even math, and when paying for a lower rate is a poor trade.
Updated 2026-08-24| Applies to: Buyers comparing pricing options and homeowners refinancing.
The short answer
Buying down your rate makes sense when you will keep the loan long enough to recover the upfront cost. Divide the cost by the monthly savings to get your break even month; if you expect to sell or refinance before then, keep the cash.
There are two very different products that both get called a buydown, and confusing them leads to bad decisions.
Permanent points
You pay an upfront cost at closing and the interest rate is lower for the life of the loan. The trade is simple: cash now for a smaller payment every month.
Temporary buydowns
A 2-1 or 3-2-1 buydown lowers the payment for the first years only, funded by an escrowed account often paid by the seller or builder. The note rate never changes; the subsidy just covers part of the payment early on.
| Feature | Permanent points | Temporary buydown |
|---|---|---|
| Rate change | Life of loan | First one to three years |
| Typical payer | Buyer | Often seller or builder |
| If you refinance early | Cost is largely lost | Unused funds usually credited |
| Qualifying rate | Lower rate | Generally the note rate |
Running the break even
- 1.Get the exact upfront cost of the buydown in dollars
- 2.Get the monthly payment with and without it
- 3.Divide the cost by the monthly savings
- 4.Compare the result to how long you realistically expect to keep the loan
Use seller money first
When a seller is willing to contribute, applying that money to a buydown often produces a bigger monthly improvement than the same dollars applied to the price. Concession limits vary by program and occupancy.
Costs, limits and availability vary by program and lender. Figures used here are illustrations, not a rate quote.
Common mistakes to avoid
- Paying points on a loan you plan to refinance within a year or two
- Assuming a temporary buydown lowers the amount you qualify for at
- Spending savings down to nothing to buy a slightly lower rate
Frequently Asked Questions
People also ask
Is APR always higher than the interest rate?
Usually APR is equal to or higher than the interest rate because it factors in certain additional costs, though the exact difference depends on the fees included in the calculation.
Read: How to Compare Mortgage Rates the Right WayAre discount points tax deductible?
Points may be deductible in some circumstances, but tax treatment depends on your situation, so it is worth checking with a tax professional.
Read: Mortgage Points, Fees, and Lender Credits: What Do They Mean?Are closing costs the same for every loan program?
No. Some programs have specific limits on certain fees or allow different levels of seller contribution, so costs can vary by program even for the same purchase price.
Read: How Much Will My Closing Costs Be?Does the Federal Reserve set mortgage rates?
No. The Fed sets short term policy rates. Mortgage rates follow long term bond market pricing, which reacts to inflation and growth expectations.
Read: How Mortgage Rates Are Actually SetDoes a bigger down payment always lower my rate?
It generally helps at specific loan to value thresholds rather than smoothly at every dollar.
Read: Why Two Borrowers Get Different Mortgage RatesTerms used in this guide
- Buydown
- Paying money upfront to lower the interest rate, either temporarily for the first years of the loan or permanently for the full term.
- Closing Costs
- The lender, title, government and prepaid costs due at closing, separate from your down payment.
Written by
Manny Oloyede, Mortgage Broker
NMLS #1824463 | Ultimate Mortgage Brokers LLC NMLS #2619461 | Licensed in OH | KY | NC | PA | SC | TN | TX
I have worked in mortgage lending since 2018 out of the Akron / Cuyahoga Falls Branch, helping buyers, homeowners and investors across Northeast Ohio and every state where I am licensed. These guides reflect the questions I answer most often, written the way I would explain them on a call.
Keep reading
How Mortgage Rates Are Actually Set
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Mortgage CostsMortgage Points, Fees, and Lender Credits: What Do They Mean?
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Mortgage CostsHow to Compare Mortgage Rates the Right Way
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Mortgage CostsHow Much Will My Closing Costs Be?
Understand the main categories that make up mortgage closing costs, including lender fees, title, taxes, insurance, escrows, and credits.
Questions about your own numbers?
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