What Buying Down the Rate Actually Buys

Mortgage discount points are a straightforward trade: cash at closing in exchange for a lower rate. One point conventionally costs 1% of the loan amount and buys about 0.25% off the rate, though lender pricing moves daily with the bond market and can range from 0.125% to 0.375% per point. The entire question of whether to buy them reduces to one comparison — how long you keep the loan versus how long the savings take to repay the upfront cost. Everything else is decoration.

The Break-Even That Decides It

On a $350,000 loan, two points cost $7,000 and a 0.5% buydown cuts the payment by roughly $111 per month, placing break-even at about 63 months. Stay past that point and the deal compounds in your favor; sell or refinance before it and you lose. The median U.S. mortgage is closed out within about 7 to 10 years through sale or refinance, which is why comparing break-even against the full 30-year term — the way many loan estimates present it — systematically overstates the case for buying points. The honest baseline is your realistic tenure, and this calculator's verdict is built on exactly that comparison.

The Refinance Trap and the Tax Angle

The classic failure mode is buying points in a high-rate environment and then refinancing when rates fall. The old loan closes, and the cash spent on its points is gone regardless of how close you came to break-even. Two factors soften the true cost: points on a purchase mortgage are generally deductible as prepaid interest in the year paid, which Professional Mode converts into a tax-adjusted break-even, and the cash could otherwise have been invested, which extends break-even by the forgone return. Both run the same direction — a realistic break-even is longer than the headline number suggests.

Compare Against the Loan You Would Actually Take

One more baseline matters: points are only worth evaluating against the zero-point version of the same loan. Many lenders offer a higher-rate option with a lender credit that already covers closing costs, and some quote rates that embed points in the first place. If the no-point loan credits your closing costs, the effective cost of a buydown is higher than 1% per point and break-even stretches accordingly. Run the comparison with your lender's exact pricing sheet — the rate reduction they quote, not the 0.25% convention — and treat the result as one input into a decision that also weighs how much cash you need at closing and whether that money has better uses.