{"id":88195,"date":"2025-07-11T05:42:25","date_gmt":"2025-07-11T12:42:25","guid":{"rendered":"https:\/\/www.redfin.com\/blog\/?p=88195"},"modified":"2025-07-11T11:15:56","modified_gmt":"2025-07-11T18:15:56","slug":"should-i-buy-down-my-mortage-interest-rate","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/blog\/should-i-buy-down-my-mortage-interest-rate\/","title":{"rendered":"When It Makes Sense to Buy Down Your Mortgage Interest Rate"},"content":{"rendered":"

Paying upfront to lower your interest rate may help if you want lower payments or plan to stay in your home long-term.<\/span><\/h3>\n

Buying a home is one of the biggest financial decisions you’ll make \u2013 and the <\/span>interest rate<\/span><\/a> you lock in can significantly affect your <\/span>monthly payments<\/span><\/a> and total cost over time. One way to lower your rate is by buying down your mortgage using discount points. But is it the right move for you? In this Redfin article, we break down how buying down your interest rate works, when it might make sense, and what to consider so you can decide if this strategy is right for you. So whether you\u2019re buying a <\/span>home in Austin<\/span><\/a> or a <\/span>property in Denver<\/span><\/a>, let\u2019s explore how a mortgage buydown could help you save money \u2013 and whether it fits your homebuying goals and timeline.<\/span><\/p>\n

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What is a mortgage buydown?<\/span><\/h2>\n

Buying down your interest rate<\/span><\/a> means paying an upfront fee at closing, known as <\/span>discount points<\/span><\/a>, to reduce your mortgage interest rate for the life of the loan. One discount point typically costs 1% of your total loan amount and can lower your interest rate by around 0.25%, though this can vary by lender and market conditions.\u00a0<\/span><\/p>\n

Example:<\/b> ,\u00a0<\/span><\/p>\n

If you\u2019re taking out a $400,000 mortgage, one discount point would cost $4,000 upfront but could lower your interest rate from 7% to 6.75%. This can reduce your monthly payment and the total interest you pay over the life of your mortgage.<\/span><\/p>\n

When should you buy down your mortgage rate?<\/span><\/h2>\n

Buying down your interest rate can be a smart move, but only in the right circumstances. Here are scenarios where it may make financial sense:<\/span><\/p>\n

You plan to stay in the home long-term<\/span><\/h3>\n

If you plan to stay in your home for several years, the upfront cost of points can pay off through lower monthly payments and reduced total interest paid.<\/span><\/p>\n

Interest rates are high<\/span><\/h3>\n

Buying down your rate can help when current interest rates are high, allowing you to secure a more manageable payment while rates remain elevated.<\/span><\/p>\n

You have extra cash at closing\u00a0<\/span><\/h3>\n

If you have extra funds after your down payment and moving expenses, using that cash to buy points can lower your payments without depleting your emergency savings.<\/span><\/p>\n

Your credit score is strong<\/span><\/h3>\n

A high credit score can help you negotiate even better terms when buying down your rate, maximizing your savings.<\/span><\/p>\n

You want to lower your monthly housing costs\u00a0<\/span><\/h3>\n

If keeping your monthly payment low is a priority, a buydown can help create more room in your monthly budget. Buying down your interest rate makes the most sense if you plan to stay in your home long enough to recover the upfront cost and benefit from lower payments. If this fits your financial goals, talk with your lender about how many points you can buy and what you could save.<\/span><\/p>\n

When a buy down might not be worth it<\/span><\/h2>\n

A buydown isn\u2019t always the best use of your money. Here\u2019s when to think twice:<\/span><\/p>\n

You plan to move or refinance soon<\/span><\/h3>\n

If you’re likely to sell or refinance within a few years, you may not break even on the upfront cost.<\/span><\/p>\n

You need that cash for something else<\/span><\/h3>\n

Using your funds for discount points might not be wise if you have <\/span>higher-priority goals<\/b>, like building an emergency fund, paying down high-interest debt, or covering renovation costs.<\/span><\/p>\n

Rates are expected to fall<\/span><\/h3>\n

If market trends suggest rates might drop soon, it may be smarter to wait and refinance later instead of paying to lock in a lower rate now.<\/span><\/p>\n

Pros and cons of buying down your interest rate<\/span><\/h2>\n

Pros:<\/span><\/h3>\n
    \n
  1. Lowers your monthly mortgage payment, freeing up cash flow.<\/span><\/li>\n
  2. May help you qualify for a higher loan amount.<\/span><\/li>\n
  3. Potential tax deduction if you itemize and the points qualify.<\/span><\/li>\n<\/ol>\n

    Cons:<\/span><\/h3>\n
      \n
    1. Requires higher upfront costs at closing.<\/span><\/li>\n
    2. May not pay off if you sell or refinance before reaching the break-even point.<\/span><\/li>\n
    3. Could reduce your negotiation leverage with sellers or builders if you request them to cover the buydown.<\/span><\/li>\n<\/ol>\n

      How to calculate your breakeven point<\/span><\/h2>\n

      Before buying down your rate, calculate your breakeven point \u2013 the amount of time it takes for your monthly savings to repay the upfront cost.Use this simple formula:<\/span><\/p>\n

      Total cost of points \u00f7 monthly savings = breakeven months<\/b><\/p>\n

      For example, if you pay $4,000 for points and save $100 each month, it will take 40 months (about 3 years and 4 months) to break even. If you plan to stay in your home longer than the breakeven point, buying down your rate can save you money over time.<\/span><\/p>\n

      Calculating your breakeven helps you decide if buying points makes sense based on your timeline and financial goals.<\/span><\/p>\n

      Temporary vs. permanent mortgage buydown:\u00a0<\/span><\/h2>\n

      There are two main types of mortgage rate buydowns, and each works a little differently.<\/span><\/p>\n

      Temporary buy down<\/span><\/h3>\n

      A temporary buy down lowers your interest rate for the first few years of your mortgage, reducing your initial monthly payments and making homeownership more affordable upfront. Common structures, like the 2-1 buydown, lower your rate by 2% in the first year and 1% in the second year before reverting to your original rate in year three. This strategy is often used by buyers who expect their income to increase in the near future or plan to refinance within a few years, allowing them to ease into mortgage payments while managing other expenses.<\/span><\/p>\n

      Permanent buy down\u00a0<\/span><\/h3>\n

      A permanent buy down reduces your interest rate for the entire life of the loan. To secure this lower rate, you pay upfront at closing by purchasing discount points (typically 1% of your loan amount per point, lowering your rate by around 0.25% per point). Unlike a temporary buy down, the savings continue month after month, making it a good choice for buyers who plan to stay in their home long-term and want predictable, lower monthly payments over the life of their mortgage.<\/span><\/p>\n

      Which option is right for you?<\/span><\/h3>\n