Mortgage Basics • Education

Buying down your interest rate

How discount points and temporary buydowns work, who can pay for them, and how to weigh the tradeoff.

A rate buydown means paying an upfront cost at closing to lower your mortgage’s interest rate — either permanently, through discount points, or temporarily, through a temporary buydown structure.

Permanent buydowns: discount points

A discount point is an upfront fee, equal to one percent of the loan amount, that you pay at closing in exchange for a lower interest rate for the life of the loan. Buying points is essentially prepaying interest to reduce the ongoing cost of the loan. You can often buy a fraction of a point or several points, depending on the lender and program.

Because a permanent buydown lowers the rate for the whole term, its value grows the longer you keep the loan. That makes the central question how long you expect to stay in the home or keep the mortgage before selling or refinancing.

Temporary buydowns

A temporary buydown reduces the rate for the first year or years of the loan, after which it steps up to the note rate. Common structures are described by the step pattern — for example a “2-1 buydown” reduces the rate more in year one, less in year two, then settles at the full rate from year three on. The upfront cost funds those early reductions and is often paid by a seller or builder as an incentive.

A temporary buydown can ease the early years of a purchase, but it is important to qualify based on the full note rate, not the reduced starting rate, so the payment is sustainable when it steps up.

Deciding whether to buy down

The decision comes down to the tradeoff between paying more upfront and paying less over time, and how long you will hold the loan. A permanent buydown tends to favor buyers who will stay put for many years; a temporary buydown suits those who want early relief or who expect their situation to change. In some markets, sellers or builders offer to pay for a buydown as a concession, which changes the math in the buyer’s favor.

Because the specifics depend on your loan, your timeline, and who pays, it is worth running the actual numbers for your situation. As a Florida mortgage broker, New Century Financial Mortgage, LLC can help you compare buydown options for a specific loan. This page is educational and is not a commitment to lend.

Frequently asked questions

What is a discount point?

A discount point is an upfront fee equal to one percent of the loan amount, paid at closing to permanently lower your interest rate. Buying points is a way of prepaying interest to reduce the ongoing cost.

What is a 2-1 buydown?

It is a temporary buydown that reduces the rate more in the first year and less in the second, then settles at the full note rate from the third year onward. The upfront cost funds the early reductions.

Who pays for a rate buydown?

Either party can. Buyers can pay for discount points, and sellers or builders sometimes pay for a buydown as a concession. Who pays affects whether it makes financial sense.

Is buying down the rate worth it?

It depends on how long you keep the loan. A permanent buydown favors buyers who stay for many years; a temporary one suits those wanting early relief. Running the numbers for your situation is the best guide.

Do I qualify based on the reduced buydown rate?

For a temporary buydown, qualifying is generally based on the full note rate, not the reduced starting rate, so the payment remains sustainable when it steps up.

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