When a lender quotes you a rate, that number is not set in stone. You can pay extra cash at closing — called mortgage discount points — in exchange for a lower interest rate over the life of the loan. This is a rate buydown, and whether it is a good deal depends entirely on how long you plan to keep the mortgage. This calculator runs the numbers: what the points cost, how much your monthly payment drops, and exactly how many months it takes before the upfront fee pays for itself.
Slide the inputs and the result card updates instantly. If your break-even date falls long after you expect to move or refinance, buying points is usually a bad bet. If you plan to stay put for decades, buydowns are one of the most predictable "guaranteed returns" in personal finance.
How to Use
- Enter the Loan Amount — the principal you are actually borrowing, after your down payment. Do not include the down payment itself in this field.
- Type your Original Interest Rate — the rate the lender quoted before any points. If you are rate-shopping, test the number on your Loan Estimate page 1.
- Set Discount Points Purchased. One point costs 1% of the loan amount (on a $400,000 loan, that is $4,000). Common choices are 0, 1, 2, or 3 points.
- Adjust Rate Reduction Per Point if your lender offered a different deal. The market norm is 0.25% per point, but lenders sometimes offer 0.125% or 0.375% depending on the day.
- Choose the Loan Term — 30 years by default, but the math works the same for 15- and 20-year fixed loans.
The result card shows your new bought-down rate, the upfront cash you will owe at closing, the two monthly payments (with and without points), the monthly savings, the break-even point in months, and the total money saved if you hold the loan to maturity.
How a Mortgage Buydown Actually Works
A discount point is prepaid interest. Instead of paying interest month by month, you pay a chunk of it up front. The lender rewards you by lowering the contractual note rate. The math uses the same standard amortization formula every US lender uses:
M = P × r(1 + r)ⁿ / ((1 + r)ⁿ − 1)
Where P is the loan amount, r is the monthly rate (annual APR ÷ 12), and n is the number of monthly payments (years × 12).
Worked example on a $400,000 loan at 7.00% for 30 years: the monthly payment is $2,661.21. Paying 1 point costs $4,000 and drops the rate to 6.75%; the new payment is $2,594.39. That saves $66.82 per month. Divide the $4,000 upfront cost by $66.82 and you get a break-even of about 60 months — roughly five years. After that, every remaining month is pure savings, and over the full 30 years you keep about $20,054 more in your pocket than if you had skipped the points.
If the buydown pushes the rate to 0%, the engine simply splits principal evenly across the term; division by zero in the PMT formula is avoided.
When a Buydown Makes Sense — and When It Does Not
A buydown is essentially a guaranteed, tax-advantaged return equal to the rate reduction. Compare it against the alternatives:
- Pay cash toward closing instead of investing it. If you cannot reliably beat the buydown's effective return in a low-risk account, the points win.
- Refinancing soon. If you expect to move or refinance in under five years, you may never reach break-even — the points are wasted.
- Boosting buying power. A lower monthly payment can help you qualify for a larger loan or fit a tighter debt-to-income ceiling.
- Builder-paid or lender-paid buydowns. Sometimes the seller, builder, or lender covers the points in exchange for a higher rate or a higher purchase price. Those should be modeled the same way.
A good rule of thumb: buy points only if you are confident you will stay in the home at least two years past the break-even point.
Examples
Example 1 — The default $400k case. A buyer takes a $400,000, 30-year loan at 7.00% and pays 1 point ($4,000) to cut the rate to 6.75%. Monthly payment drops from $2,661.21 to $2,594.39 — a savings of $66.82/month. Break-even hits at 59.9 months (about 5 years). If they hold for the full 30 years, total savings net of the upfront fee is about $20,054.
Example 2 — The $1M jumbo loan. On a $1,000,000 loan at 7.50% for 30 years, paying 2 points ($20,000) cuts the rate to 7.00%. Monthly payment drops from $6,992.15 to $6,653.02 — a savings of $339.12/month. Break-even is 59.0 months, and lifetime savings reach roughly $102,083. On jumbo balances, even a 0.5% rate move is worth tens of thousands of dollars.
Example 3 — The 15-year refi. A homeowner refinances $250,000 at 6.50% into a 15-year term and pays 1 point ($2,500) to lock 6.25%. Monthly savings are only $34.21, pushing break-even out to 73 months (just over 6 years). Because the loan is shorter, the lifetime savings are a modest $3,658 — and if they refinance again before year six, the points lose money.
Example 4 — Zero points. A buyer chooses not to buy any points at all. The calculator shows $0 upfront, $0 monthly savings, and $0 lifetime savings — confirming that skipping buydown is the baseline every other option is compared against.
FAQ
What is a mortgage buydown?
A mortgage buydown is when you pay extra cash at closing (in the form of discount points) to reduce your home loan's interest rate. One point typically costs 1% of the loan amount and lowers the rate by about 0.25%. It is the opposite of a no-closing-cost mortgage, where the lender raises your rate in exchange for paying your fees.
How much does one discount point cost?
One discount point equals 1% of the loan amount, not 1% of the home price. On a $400,000 loan, one point costs $4,000. On a $1,000,000 loan, one point costs $10,000. Always confirm the dollar cost with your lender, because some charge a flat fee per point rather than a true 1%.
How much does one point lower my rate?
The market norm is 0.25% per point, but this varies by lender, day, and loan program. On a 30-year conforming loan you might see 0.25% per point; on jumbo or FHA loans the trade can be 0.125%–0.375%. Use the slider on this page to match the actual rate sheet your lender gave you.
How do I calculate the break-even point?
Divide the upfront cost of the points by the monthly payment reduction. For example, if you pay $4,000 in points and save $67 per month, your break-even is $4,000 ÷ $67 ≈ 60 months. Stay in the loan longer than that and the buydown pays off; sell or refinance before and you lose money on the points.
Is buying points worth it if I might refinance soon?
Almost certainly not. If you expect to refinance, sell the home, or pay off the loan in under five years, you usually will not reach the break-even point. The upfront fee is gone, but the lower rate is canceled when the loan closes. Only buy points when you are confident you will keep the mortgage for at least two years past the calculated break-even.
Are mortgage points tax deductible?
In the United States, discount points are generally considered prepaid interest and may be tax-deductible in the year you pay them, subject to IRS limits and rules (the loan must be for your primary residence, the points must be a customary charge, and you must itemize deductions). Consult a tax professional for your situation — the rules change with tax law and your filing status.
What is the difference between permanent and temporary buydowns?
A permanent buydown (what this calculator models) lowers the rate for the entire life of the loan in exchange for an upfront point. A temporary buydown (often called a 2-1 or 3-2-1 buydown) lowers the rate for the first one to three years only, then steps up to the note rate. Temporary buydowns are usually paid by the builder or seller and are modeled differently.
Disclaimer
This mortgage buydown calculator is provided for informational purposes only and does not constitute financial, lending, tax, or investment advice. Estimates are based on the inputs you enter and the standard amortization formula; actual lender offers, point pricing, and rate reductions vary by institution, credit profile, loan program, and market day. Tax treatment of discount points depends on your individual circumstances. Always confirm your final rate, point cost, and terms directly with a licensed mortgage professional before closing on a loan.