Is Buying Down Your Mortgage Rate Worth It? Here’s What You Should Know
In today’s high-interest housing market, many buyers are exploring every option to make homeownership more affordable — and one strategy gaining attention is buying down your mortgage rate. Known as purchasing mortgage points or discount points, this tactic allows you to pay an upfront fee at closing in exchange for a lower interest rate for the life of your loan.
While this approach can provide both immediate relief and significant long-term savings, it’s not always the right choice for every buyer. To determine if this is a smart move for you, it’s important to understand how mortgage buydowns work, what they cost, and when they’re most beneficial.
When you apply for a mortgage, your lender offers an interest rate based on your credit score, loan amount, financial profile, and market conditions. Buying down your rate means you pay extra at closing to reduce that interest rate, thereby lowering your monthly mortgage payments. This is achieved by purchasing mortgage points. Each point typically costs 1% of your loan amount and generally reduces your rate by about 0.25%, though this can vary by lender.
For example, if you’re taking out a $500,000 loan, purchasing one mortgage point would cost $5,000. If that point drops your interest rate from 6.75% to 6.5%, your monthly payment could fall by about $83. Over a 30-year mortgage, that adds up to nearly $30,000 in savings. However, you’ll need to stay in the home for a certain number of years to break even on the cost of the point — in this case, roughly five years.
It’s also worth understanding the concept of lender credits, which are essentially the reverse of discount points. Instead of paying to lower your interest rate, you receive money from the lender to offset some of your closing costs. In exchange, you agree to a higher interest rate. This can be helpful if you’re short on cash upfront, but it will result in higher monthly payments and increased costs over the life of the loan.
With mortgage rates currently hovering near 6.9% for 30-year loans — significantly higher than the record lows seen just a few years ago — buying down your rate might be more attractive than ever. For buyers planning to stay in their homes long-term, the savings from a lower interest rate can add up significantly. On the flip side, if you plan to sell or refinance within a few years, you may not be in the home long enough to recoup the upfront cost of the buydown.
There are also temporary buydown options, such as the 3-2-1 buydown. This structure allows the borrower to enjoy a reduced interest rate for the first three years of the loan — 3% lower in the first year, 2% in the second, and 1% in the third — before the rate resets to the original contract rate. These are often paid for by sellers or builders as an incentive to attract buyers. Unlike standard buydowns that last for the life of the loan, 3-2-1 buydowns are temporary, offering short-term savings as buyers ease into full payments.
While the benefits of buying down your mortgage rate are compelling, they come with trade-offs. On the positive side, a lower rate means smaller monthly payments, greater buying power, substantial long-term interest savings, and faster equity growth. More of your payment will go toward the principal, helping you build ownership in your home faster.
However, the drawbacks include the upfront cost of purchasing points, which can deplete your cash reserves. If you move or refinance before reaching your break-even point, you won’t recoup that investment. There’s also the opportunity cost to consider — that money could potentially be better spent on a larger down payment, home upgrades, or even paying down high-interest debt.
A mortgage buydown is generally worth it if you plan to live in the home for a long time and have extra cash available after covering your down payment and closing costs. It’s also more viable if your financial position is strong enough to handle the upfront cost without draining your savings. If you expect to move in a few years or refinance to a better rate when the market improves, the buydown might not offer enough benefit to justify the cost.
Ultimately, the decision to buy down your mortgage rate comes down to your personal financial goals, your timeline for staying in the home, and how much you can afford upfront. Consulting with a trusted mortgage advisor can help you understand the options and crunch the numbers to see if this approach makes sense for your unique situation.
In the end, a mortgage buydown isn’t just about locking in a lower rate — it’s about making a strategic decision that aligns with your long-term financial well-being.