Buying down your mortgage rate:
what points cost and when they pay off

Buying down your mortgage rate means paying an extra fee at closing, called points, in exchange for a lower interest rate for the life of the loan. One point costs 1 percent of the loan amount, and a common rule of thumb is that it lowers the rate by a quarter of a percentage point. Points pay off only if you keep the loan long enough for the monthly savings to cover the fee, which takes five years in the example below.

Rates are the reason to look at points now. Freddie Mac's weekly survey put the average 30-year fixed rate at 7.28 percent on October 1, the highest since November 2023 and up from 5.98 percent in late February. On a $400,000 loan, that's $344 more a month in principal and interest, the part of the payment that goes to the loan itself, before taxes and insurance. I wrote about why rates climbed in September.

More buyers paid for points during the last run-up in rates. In the first nine months of 2023, 58.7 percent of borrowers with home purchase loans paid discount points, up from 30.5 percent in 2021, the Consumer Financial Protection Bureau found.

Points buy a permanent reduction. A temporary buydown is a different product that lowers the rate for only the first year or two, and I cover it further down.

What a point costs and what it buys

One point costs 1 percent of your loan amount. On a $400,000 loan, one point is $4,000. You can also buy half a point, or two. Lenders call them discount points, and paying them means prepaying some of your interest at the closing table.

What a point buys depends on the lender and the day. The rate reduction "depends on the specific lender, the kind of loan, and the overall mortgage market," the CFPB says. A common rule of thumb is a quarter of a percentage point off the rate for each point you buy. Freddie Mac's own example takes a 6.25 percent rate to 6 percent for one point.

It's worth asking each lender for the rate with no points and the rate with one point. Once you apply, the lender has to send you a Loan Estimate, a standard three-page form, within three business days. The cost of the points is on page 2, in Section A, written as a percentage of the loan amount.

When points break even

Points pay you back a little each month. Break-even is the month when those savings add up to what you paid.

Take a $500,000 home with 20 percent down. That's a $400,000 loan. On a 30-year fixed, say the lender offers 7.25 percent with no points or 7 percent if you buy one point.

1. Paid at closing$4,0001 percent of the $400,000 loan
2. Saved monthly$67.50your payment drops from $2,728.71 at 7.25 percent to $2,661.21 at 7 percent
3. Break-even60 months$4,000 ÷ $67.50 = 59.3 months, so you're ahead from month 60

Here's where one point leaves you if you sell or refinance at each date. A plus means you're ahead after paying for the point. A minus means you haven't earned the $4,000 back yet.

• After 3 years−$1,570$2,430 saved, $4,000 paid
• After 7 years+$1,670$5,670 saved, $4,000 paid
• After 10 years+$4,100$8,100 saved, $4,000 paid
• The full 30 years+$20,300$24,300 saved, $4,000 paid

Few buyers reach that last number. The average life of a mortgage is around seven to 10 years, according to the Federal Reserve Bank of Atlanta.

The same $4,000 buys a very different deal if the lender gives you more or less rate for it:

Rate drop per point	New rate	Monthly payment	Monthly savings	Break-even
0.125%	7.125%	$2,694.87	$33.84	Month 119
0.250%	7.000%	$2,661.21	$67.50	Month 60
0.375%	6.875%	$2,627.72	$100.99	Month 40

One point ($4,000) on a $400,000 30-year fixed loan at 7.25 percent, where principal and interest is $2,728.71 a month.

A five-year break-even is shorter than the low end of that seven-to-10-year average. The 119-month break-even in the table's first row, almost 10 years, is at the far end of it.

Run your own numbers

The calculator starts on that example. Its 7.25 percent rate is close to Freddie Mac's October 1 average of 7.28 percent. Set the price, down payment and rate to match your loan, then move two sliders: how many points you buy and how many years you expect to keep the loan.

The two lower numbers show whether you're ahead (+) or behind (−) at the years you chose and over the full term. On the chart, the solid green line is your total savings so far and the dashed line is the cost of the points. They cross at break-even.

Lenders differ in what a point takes off the rate. To change it, open "Loan term and lender pricing" and move "Rate drop per point." At 0.125% break-even moves to month 119, the first row of the table above. The "2-1 buydown" button switches to a temporary buydown, which the next section explains.

Seller-paid points, temporary buydowns and lender credits

• Seller-paid points. You can negotiate a credit from the seller at closing, known around here as seller assist, and put it toward points. Loan programs cap seller credits. On a conventional loan, Fannie Mae limits seller contributions to 3 percent of the price if you put down less than 10 percent, 6 percent if you put down 10 percent to just under 25 percent and 9 percent if you put down 25 percent or more. FHA and VA loans have their own limits, so confirm yours with your lender before you write it into an offer.
• Temporary buydowns. A 2-1 buydown lowers your rate by two percentage points in the first year and one percentage point in the second. From the third year on you pay the full rate, 7.25 percent in the example. A seller or a builder can pay for it up front, and on the $400,000 example the buydown costs $9,429. The lender still has to qualify you at the full rate. Switch the calculator to "2-1 buydown" to see the cost on your loan.
• Lender credits. These are points in reverse. You accept a higher rate and the lender gives you money toward your closing costs. They help when cash at closing is the tight spot.

Should you buy points?

Compare two numbers: your break-even month and how long you expect to keep the loan.

Points make sense when:

• You expect to keep the loan well past break-even.
• You'll still have savings after the down payment and closing costs.
• The seller is paying. Points paid with seller assist take no cash from you at closing, so a long break-even matters less.

Skip points when:

• You might sell or refinance within a few years. A refinance replaces the loan you bought the points on, so if rates drop and you refinance in year two, that money is gone.
• The cash would do more somewhere else. If you're putting down less than 20 percent, a larger down payment can get you out of private mortgage insurance.
• The lender gives you too little rate for the money. An eighth of a percentage point for a full point puts break-even at almost 10 years.

The CFPB says much the same: discount points are "less useful for cash-strapped borrowers and those who expect to refinance or move in the near future."

Nobody can tell you where rates are headed, and I won't pretend I can. You do know roughly how long you plan to stay and how much cash you want to keep on hand.

Are points tax deductible?

They can be. The IRS lets you deduct points on a loan for your main home in the year you pay them if you itemize and meet the IRS's conditions, per IRS Topic 504. Points the seller pays are treated as paid by you, and they reduce your cost basis, the figure used to calculate your gain when you sell. Ask your accountant before you count on it.

Points and Philadelphia closing costs

Cash at closing is already tight for buyers in Philadelphia. The city and state realty transfer tax totals 4.578 percent of the sale price, and by custom the buyer and seller each pay half. On a $500,000 purchase the buyer's half is $11,445, almost three times the cost of one point on that loan. I broke down the rest in my guide to buyer closing costs.

That's why seller assist is such a useful tool for buyers in Mt. Airy, Roxborough and elsewhere in Philadelphia, whether it goes toward closing costs or toward a lower rate.

If you're weighing points on a home in Northwest Philadelphia or Montgomery County, reach out and send me the Loan Estimate. We'll go through the real numbers together, and coffee's on me. If you're buying in the city, my Mt. Airy and Roxborough pages explain how I work with buyers there.

I'm a REALTOR®, not a lender or a tax advisor. Rates, point pricing and loan program limits are current as of October 2026 and change often, so confirm the specifics with your lender for your loan.

---

Sources: Freddie Mac Primary Mortgage Market Survey, via FRED, Federal Reserve Bank of St. Louis, retrieved October 4, 2026; Consumer Financial Protection Bureau, "What are (discount) points and lender credits and how do they work?" and "What is a Loan Estimate?"; Consumer Financial Protection Bureau, "Trends in discount points amid rising interest rates," April 5, 2024; Freddie Mac, "What You Need to Know About Discount Points"; Federal Reserve Bank of Atlanta, "Not Joined at the Hip," David Pendered, November 10, 2025; Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions; Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns; IRS Topic No. 504, Home Mortgage Points; City of Philadelphia Department of Revenue, Realty Transfer Tax rate.

Henry is a Philadelphia-based REALTOR® serving buyers and sellers in Northwest Philadelphia and Montgomery County, PA. Questions? Get in touch.

Frequently asked questions

What does it mean to buy down a mortgage rate?

Buying down a mortgage rate means paying an extra fee at closing, called discount points, in exchange for a lower interest rate for the life of the loan. You pay more up front and less every month. A temporary buydown is a different product: it lowers the rate for only the first year or two, and the rate then returns to the full rate.

How much does one mortgage point cost, and how much does it lower the rate?

One point costs 1 percent of the loan amount, so one point on a $400,000 loan is $4,000. How much it lowers the rate depends on the lender, the loan type and the market that day. A common rule of thumb is a quarter of a percentage point per point, which would take a 7.25 percent rate to 7 percent. The exact cost is on page 2 of the Loan Estimate, in Section A.

How long does it take to break even on mortgage points?

Divide the cost of the points by the monthly payment savings. On a $400,000 30-year fixed loan at 7.25 percent, one point costs $4,000 and lowers principal and interest from $2,728.71 to $2,661.21 at 7 percent. That saves $67.50 a month, so the points pay for themselves in month 60. If the same point lowers the rate by only an eighth of a percentage point, break-even takes 119 months.

Can the seller pay for mortgage points?

Yes. A buyer can negotiate a credit from the seller at closing, known locally as seller assist, and use it for points. Loan programs cap the credit. On a conventional loan for a primary residence, Fannie Mae limits seller contributions to 3 percent of the price with less than 10 percent down, 6 percent with 10 percent to just under 25 percent down and 9 percent with 25 percent or more down. FHA and VA loans have their own limits.

What is a 2-1 buydown?

A 2-1 buydown is a temporary rate reduction. The rate is two percentage points lower in the first year and one percentage point lower in the second, and from the third year on the borrower pays the full rate. A seller or a builder can pay for it up front. On a $400,000 loan at 7.25 percent it costs $9,429, and the lender still qualifies the borrower at the full rate.

Are mortgage points tax deductible?

They can be. The IRS allows a buyer who itemizes to deduct points paid on a loan for a main home in the year they are paid, if the loan meets a list of conditions in IRS Topic 504. Points the seller pays are treated as paid by the buyer, who then subtracts them from the home's cost basis. A tax professional can confirm how the rules apply to a specific return.