Quick read
- Discount points are a fee paid at closing to permanently lower your interest rate. One point generally costs 1% of the loan amount.
- A temporary buydown (such as 2-1 or 3-2-1) lowers your payment for the first one to three years, then steps up to your note rate.
- The right choice depends on how long you will keep the loan and who is paying. Break-even tells you how long it takes points to pay for themselves.
- Sellers, builders and sometimes lenders can contribute toward either option. It is worth asking.
Discount points: a permanent lower rate
With points, you pay money up front and get a lower interest rate for the life of the loan. How much the rate drops per point depends on the market and the lender, so you need a real quote. The key question is simple: how long until the monthly savings add up to what you paid? That is your break-even point.
Break-even calculator
Temporary buydowns: relief early, then the note rate
A temporary buydown sets aside money at closing to lower your payment in the first few years. Your actual note rate does not change. In a 2-1 buydown, for example, the rate is lowered 2 percentage points in year one and 1 point in year two, then it returns to the note rate in year three. A 3-2-1 works the same way over three years.
It can be a fit when you expect your income to rise, you plan to refinance if rates fall, or a seller is willing to fund it. Because the rate resets to the note rate, it is wise to be comfortable with the full payment.
Side by side
| Discount points | Temporary buydown | |
|---|---|---|
| How long it lasts | Life of the loan | First 1 to 3 years |
| Note rate | Lowered | Unchanged |
| Best when | You will keep the loan a long time | You want early payment relief or a seller is paying |
| Who can pay | You, and sometimes a seller or lender credit | Seller, builder, agent, lender or you |
| Key number | Break-even in months | Total payment savings over the buydown period |
Who can pay for it?
Buyers are not always the ones paying. Sellers and builders commonly offer concessions, and lenders sometimes offer credits. Each loan program limits how much of the purchase price can come back as concessions, so ask Daniel what applies to your deal.
How to decide
- Get a quote with and without points.
- Calculate your break-even, and compare it to how long you honestly expect to keep the loan.
- If someone else is paying, compare using their money before using yours.
- If you may refinance soon, favor the option you are less likely to waste.
Want to see how this works for your situation?
Daniel will give you a straight answer, including when a different option is the better fit.
You are leaving this site to enter the secure application portal.Frequently asked questions
What is a discount point?
A fee equal to 1% of your loan amount, paid at closing to lower your interest rate. How much the rate drops depends on pricing at the time.
Does a temporary buydown change my rate permanently?
No. Your note rate stays the same. The buydown only lowers your payment for the first one to three years.
Can the seller pay for a buydown?
Often, yes, within the concession limits of your loan program. It is a common way to negotiate.
Which one is better?
Neither is better for everyone. Points favor long-term holders. A temporary buydown favors people who want early relief or have someone else paying.
Daniel helps Houston-area buyers, homeowners and investors choose the right mortgage and the right structure, and he will tell you when a loan is not the right move.
This article is for general educational purposes only and is not financial, legal or tax advice, a commitment to lend, or a rate quote.
Programs, rates, fees and terms are subject to borrower and property qualification, change without notice, and are set by our wholesale lending partners. Not all products are available in all areas or to all borrowers. Daniel Taylor, NMLS# 2703683, NEXA Lending, NMLS# 1660690. Equal Housing Opportunity.