Permanent Rate Buydowns: Is Paying Discount Points Worth it in 2026?

Mortgage rates don’t need to be rising for buyers to ask how to lower them. In fact, questions about buying down a mortgage rate tend to come up most often when rates feel uncomfortable or volatile. Even though mortgage rates have come down from their recent highs and are near multi‑year lows, they are still well above their long‑term average over the past two decades. That gap alone is enough to make many borrowers want to explore ways to lower their rate—regardless of whether rates are moving up, down, or sideways.

One of the first strategies borrowers hear about is paying discount points to buy down the rate. On the surface, it sounds logical: pay more at closing, secure a lower interest rate, and save money over time.

But permanent rate buydowns are one of the most misunderstood tools in mortgage finance. They can absolutely make sense in specific situations. They can also quietly cost borrowers tens of thousands of dollars when used without a clear strategy—especially in environments where refinancing is likely.

The difference isn’t the rate itself. It’s timing.

This article breaks down how permanent rate buydowns actually work, how to evaluate them properly, and how they compare to temporary mortgage buydowns. The goal isn’t to chase the lowest rate on paper. It’s to choose a structure that still makes financial sense once real life, refinancing, and market changes enter the picture.

What Does It Mean to Buy Down a Mortgage Rate?

A permanent rate buydown is achieved by paying discount points at closing. Discount points are essentially prepaid interest. In exchange for that upfront payment, the lender reduces your interest rate for the entire life of the loan.

One discount point equals one percent of the loan amount (on a $500,000 mortgage, one point costs $5,000), but it won't lower your interest rate by 1%. The rate reduction you receive for each point varies based on market conditions, loan type, and lender pricing, but a common benchmark is roughly a 0.25% reduction per point.

What matters most is not the size of the rate reduction, but how long you keep the loan. Discount points don’t eliminate interest. They move it forward in time. You pay more interest today so that you can pay less interest later.

Whether that tradeoff works depends entirely on your timeline.

The Breakeven Period: The Only Metric That Matters

Every permanent rate buydown should be evaluated using one calculation:

Breakeven equals the cost of the points divided by the monthly payment savings.

If you spend $6,000 on points and save $100 per month, your breakeven period is 60 months (i.e., 5 years). Until you pass that point, the buydown is losing money. After that point, it begins to generate savings.

This is where many borrowers make mistakes when evaluating a lender's offer. They focus on the lower payment and ignore how long it takes to recover the upfront cost. Even worse, they assume they will keep the loan long enough without pressure-testing that assumption based on today's market conditions. You need to ask yourself if you think you won't sell or refinance before you pass the breakeven point.

Refinancing resets the breakeven clock. Selling resets it. Changing loan terms resets it. A permanent buydown only works if the same loan stays in place beyond the breakeven period.

A Practical Example With Realistic Outcomes

Assume a $400,000 mortgage.

At a 6.25% rate with no points, the principal and interest payment is approximately $2,463 per month.

If you purchase one discount point for $4,000 and reduce the rate to 6.00%, the payment falls to roughly $2,398. That’s a monthly savings of about $65, resulting in a breakeven period of just over 60 months.

If instead you purchase three discount points for $12,000 and reduce the rate to 5.50%, the payment drops to approximately $2,271. The monthly savings increases to around $192, but the breakeven period remains close to 60 months.

Spending more money doesn’t necessarily shorten the breakeven timeline. It simply increases the size of the bet.

Now add reality.

If you refinance after 24 months, the one-point buydown saves you roughly $1,560 while costing $4,000. The three-point buydown saves approximately $4,600 while costing $12,000. In both cases, the borrower loses money despite having enjoyed a lower payment the entire time.

This is why permanent buydowns must be evaluated against realistic refinance timelines, not best-case assumptions. The larger buydown does not protect you from early-exit risk. It magnifies it.

When Permanent Rate Buydowns Can Make Sense

Permanent rate buydowns are not inherently bad. They are situational.

They tend to make sense when a borrower is highly confident they will keep the same loan well beyond the breakeven period. This usually means long-term homeownership plans, stable income, and little likelihood of refinancing due to market conditions or life changes.

They can also make sense for borrowers who prioritize long-term payment stability and are not concerned about tying up cash at closing. In those scenarios, a lower fixed payment can provide predictability and reduce total interest paid over decades.

The key is certainty. The more confidence you have in the loan’s lifespan, the more defensible a permanent buydown becomes.

Why Permanent Buydowns Often Fail in the Real World

The biggest risk with discount points isn’t the math. It’s reality.

Permanent buydowns assume a stable rate environment and a long‑lived loan. That assumption is fragile, especially when rates are already trending lower and many economists expect further declines. Falling rates are not a hypothetical risk — they are the most common reason borrowers refinance.

When rates drop, refinancing is the rational move. But refinancing is exactly what breaks the economics of permanent points.

A borrower who buys down their rate and refinances one or two years later does not “almost break even.” They lose most of the upfront cost. The interest savings simply didn’t exist long enough to offset what was paid at closing.

This is why permanent buydowns are most dangerous in declining‑rate environments. The better rates get, the less likely it is that a borrower will keep the original loan long enough for the points to pay off.

There is also a significant opportunity cost. Cash spent on points is cash that cannot be used for reserves, a larger down payment, renovations, or flexibility. Once that money is paid, it is locked into a single assumption: that this specific loan will last.

For many borrowers, that assumption does not hold.

The biggest risk with discount points isn’t the math. It’s reality.

Most borrowers refinance more frequently than they expect. Rates change. Income changes. Equity builds. Family needs shift. Financial strategies evolve. What feels like a long-term loan at closing often turns into a short-term bridge to something better.

When that happens, permanent points do not transfer. They are not refunded. They do not roll into the next loan. The money is gone.

There is also a significant opportunity cost. Cash spent on points is cash that cannot be used for a larger down payment, reserves, home improvements, or flexibility. Once that money is paid, it is locked into a single assumption: that this loan will survive long enough to justify it.

That assumption fails more often than borrowers expect.

Temporary Mortgage Buydowns: A Different Strategy Entirely

Temporary mortgage buydowns solve a different problem. Instead of permanently lowering the interest rate, they reduce the monthly payment for a defined introductory period.

The most common structure is a two‑one buydown. If the final rate is 6.25%, the payment is based on 4.25% in the first year, 5.25% in the second year, and 6.25% from year three onward.

The difference between the reduced payment and the full payment is covered by funds placed into an escrow account at closing.

Here is the critical distinction: temporary buydowns are usually funded by seller credits or lender credits, not by buyer‑paid cash. That changes the risk profile entirely.

Those funds are also not forfeited if the buydown isn’t fully used. If you refinance or sell before the buydown period ends, the unused portion of the escrowed funds is typically refunded to you or applied directly to your loan payoff. In other words, you don’t lose the money simply because you refinanced early.

To put numbers to it, assume a borrower negotiates $15,000 in seller credits to fund a 2-1 buydown on a 30-year fixed loan with a 6.25% note rate.

How much of that credit gets used depends mostly on the loan amount, because the monthly payment gaps scale with principal.

On a $400,000 loan, the full payment at 6.25% is about $2,463. Year 1 (4.25%) is about $1,968, and Year 2 (5.25%) is about $2,209. If the borrower refinances after 18 months, they’ve used approximately $7,466 of the escrowed buydown funds, leaving about $7,534 unused.

On a $650,000 loan, those same payment gaps are larger. Refinancing after 18 months uses approximately $12,132, leaving about $2,868 unused.

That unused amount typically doesn’t vanish. It’s commonly applied to the loan payoff at refinance (or returned at closing), which is exactly why temporary buydowns carry less early-exit risk than permanent discount points.

Why Temporary Buydowns Are Often More Aligned With How Buyers Actually Behave

Temporary buydowns are designed to address early ownership cash flow without requiring long-term assumptions.

They reduce payments during the most expensive years of homeownership, when moving costs, furnishing, and lifestyle adjustments are highest. They preserve liquidity. They also align with the reality that many borrowers expect to refinance if rates improve.

If a borrower refinances during the buydown period, any unused escrow funds are typically applied to the loan payoff or returned. That means the borrower does not lose money simply because they acted strategically.

Permanent points do not offer that flexibility.

Permanent Buydowns vs Temporary Buydowns: A Strategic Comparison

A permanent buydown is a long-term interest optimization strategy. It only works if the loan survives past the breakeven point.

A temporary buydown is a short-term cash flow strategy. It provides immediate relief without requiring a long-term commitment.

Permanent buydowns require buyer-paid cash, carry significant refinance risk, and only pay off over time.

Temporary buydowns are usually funded with credits, protect flexibility, and align with uncertain timelines.

Neither option is universally better. The correct choice depends on how confident you are in the future of the loan itself.

Falling Rates Change the Math on Discount Points

When rates are flat or rising, permanent buydowns can be evaluated more cleanly. When rates are falling, the math changes.

Today, 30‑year mortgage rates are sitting in the low‑6% range, down meaningfully from recent highs near 7%–7.5%. More importantly, a growing share of economists and market participants expect additional rate relief over the next 12–24 months, even if it comes in fits and starts.

Lower rates increase the probability of refinancing. Higher refinance probability shortens loan lifespan. Shorter loan lifespan makes breakeven harder to reach.

That dynamic matters because permanent discount points only work if the loan survives long enough. When rates are already off their highs and expectations point toward further easing, the likelihood that a borrower refinances before breakeven rises sharply.

As we break down in our mortgage rate outlook, even modest declines can trigger meaningful refinance activity. In those environments, permanent points often shift from a calculated investment into a sunk cost—while more flexible strategies, like temporary buydowns, preserve optionality.

Final Take: Strategy Beats Rate Chasing

Permanent rate buydowns can work when the timeline is clear, liquidity is strong, and the loan is expected to last. For many borrowers, those conditions simply do not exist in today’s market.

Temporary buydowns offer a more flexible alternative. They reduce payments when it matters most, preserve cash, and protect borrowers from assumptions about rates, refinancing, and life plans that may not hold up over time.

The smartest decision is not about securing the lowest possible rate on paper. It’s about choosing a loan structure that still makes sense if rates move, plans change, or opportunities to refinance appear sooner than expected.

This is exactly where working with a broker matters. At LendFriend Mortgage, we don’t push points because they look good on a rate sheet. We model real timelines. We stress‑test refinance scenarios. We compare permanent points, temporary buydowns, and no‑point options across multiple lenders so you can see—clearly—what actually works and what quietly destroys value.

If you want a true side‑by‑side analysis of permanent points versus temporary buydowns based on your loan size, your cash position, and your likely timeline, we’ll walk you through it without bias or sales pressure.

That’s how we approach these decisions at LendFriend Mortgage. No default answers. No rate theater. Just math, timelines, and a strategy designed to hold up in the real world.

 Give us a call at 512.881.5099 or get in touch with me by completing this quick form, and I'll be in touch as soon as possible.