Permanent Mortgage Rate Buydown Calculator

1. What discount points are

A discount point is an upfront fee paid to the lender in exchange for a permanently lower interest rate on the loan. This is different from a temporary 1-0, 2-1, or 3-2-1 buydown, which subsidizes your payment for a year or two and then reverts — a permanent buydown changes the rate the loan actually amortizes at, for the life of the loan.

2. How point cost is calculated

Point cost = loan amount × points ÷ 100. One point is 1% of the loan amount — on a $500,000 loan, 1.5 points costs $7,500. This is a fixed calculation; what varies by lender and market is how much rate reduction that $7,500 actually buys.

3. Why a lower payment alone does not prove the buydown is worthwhile

A lower rate always produces a lower monthly payment — that part isn’t in question. What’s in question is whether the upfront cost is recovered before you sell, refinance, or pay off the loan. A simple payment comparison ignores that the two options also leave you with different remaining loan balances at that point, which is why this calculator’s primary result is the economic break-even below, not just the monthly savings.

4. Payment-savings break-even versus economic break-even

The payment-savings break-even divides the extra upfront cost by the monthly payment savings — simple, but it ignores that the lower-rate loan also amortizes differently, leaving a different remaining balance. The economic break-even compares net upfront cost plus cumulative interest paid, month by month, for both options — it accounts for amortization and is the more accurate measure. The two numbers are often different; see the worked example below.

5. How expected holding period affects the decision

A buydown only pays for itself if you keep the loan past its break-even point. The shorter you expect to hold the loan before selling, refinancing, or paying it off, the less likely a buydown is to make sense — and the more that expectation matters to get right.

6. Borrower-paid versus seller-paid points

Points paid out of your own funds are a real cost you’re weighing against future savings. Points covered by a seller or lender contribution reduce or eliminate that direct cost — but the credit could often be used another way (toward closing costs or prepaid expenses instead), so a seller-funded buydown isn’t automatically the best use of that concession. See the seller-paid points section in the calculator above.

7. Opportunity cost

Cash spent on points is cash that isn’t available to invest elsewhere. The optional opportunity-cost analysis above illustrates what that cash might have grown to at an assumed rate of return — an assumption you control and can turn off, not a guarantee.

8. When a permanent buydown may make sense

When the economic break-even falls meaningfully before your expected holding period, and the projected cost advantage at that point is not marginal — or when a seller or lender contribution covers most or all of the incremental cost.

9. When it may not make sense

When you expect to sell or refinance before the economic break-even point, when the break-even is close enough to your expected exit that a small change in timing could reverse the result, or when the quoted buydown rate isn’t meaningfully lower than the no-buydown rate.

10. Questions to ask a licensed lender

• What rate and payment do I get with zero points, for comparison?
• Exactly how much does each additional point cost, and how much does it lower the rate?
• Are there other lender costs specific to either option?
• If a seller or lender credit is involved, can it be applied to points, or only to closing costs?
• Is this a permanent buydown, or a temporary 1-0, 2-1, or 3-2-1 buydown? They are not the same product.