Cost to Buy Down Mortgage Rate | GO Mortgage

Mortgage rates can make or break your monthly budget, and that’s why many buyers consider a rate buydown to secure lower payments. But how much does it cost to buy down a rate? Is it always worth it? And what’s the difference between a temporary and permanent buydown?

Let’s break down the idea and functionality of a rate buydown so you can make a smart decision for your home loan in 2025.

What is a mortgage rate buydown?

A mortgage rate buydown lets you reduce the interest rate on your loan by paying additional money upfront. 

This can be done either permanently—by purchasing “discount points”—or temporarily, with a structured rate reduction for the first few years of the loan term.

Both strategies can help you lower your monthly payment, but they work very differently and have different long-term implications.

What are discount points and how do they work?

Discount points are essentially prepaid interest. When you buy discount points, you pay a fee at closing in exchange for a lower interest rate on your mortgage. 

One discount point typically equals 1% of your total loan amount and usually reduces your rate by 0.25%, though that exact discount can vary by lender and market conditions.

For example, if you’re taking out a $400,000 mortgage, one point would cost $4,000. That could reduce your interest rate from 7% to 6.75% for the entire life of the loan.

These points only apply to permanent buydowns, not to temporary rate reductions.

How much does it cost to buy down a rate?

Here’s a quick breakdown of typical costs:

• 1 point = 1% of the loan amount
• 1 point = ~0.25% rate reduction
• To reduce your rate by 1%, you may need to buy 3 to 4 points

To lower a $400,000 mortgage by a full 1%, you might pay $12,000 to $16,000 at closing.

Before making that decision, you’ll want to calculate your breakeven point—more on that shortly.

Who typically pays for a rate buydown?

While you can pay for the buydown yourself, it’s common for sellers or builders to offer rate buydowns as incentives, especially in a slower market or a new construction deal.

If you’re buying a newly built home or negotiating with a motivated seller, ask if they’ll cover the cost. A seller-paid buydown could make the home more affordable without any extra upfront cost to you.

How long does a buydown last?

That depends on the type of buydown you choose:

• Permanent buydown: The interest rate reduction applies for the full loan term—usually 15 or 30 years.
• Temporary buydown: The rate drops for a fixed period (typically 1–3 years), then reverts to the standard contract rate.

Popular temporary buydown structures include:

• 1-0 buydown: 1% reduction for the first year
• 2-1 buydown: 2% lower in year one, 1% lower in year two, then full rate afterward
• 3-2-1 buydown: 3% off year one, 2% off year two, 1% off year three, then full rate starting year four

Want to learn more about the 2-1 buydown program? We’ve got you covered.

Should I choose a temporary or permanent buydown?

That depends on your goals and timeline.

Choose a permanent buydown if:

• You’re planning to stay in the home for a long time
• You have the upfront cash to pay points
• You want predictable monthly payments

Choose a temporary buydown if:

• You need lower payments in the first few years
• You expect your income to increase
• The seller or builder is covering the cost

Just remember: once the temporary period ends, your payment will increase. Be sure that future payments will fit comfortably into your budget.

How to calculate your breakeven point

If you’re paying for the buydown yourself, you’ll want to determine if it’s worth the upfront cost. Here’s how:

Cost of points ÷ monthly savings = breakeven point (in months)

Let’s say you buy 3 points for $12,000, and it lowers your monthly mortgage payment by $300. Your break-even point would be:

$12,000 ÷ $300 = 40 months

So, if you plan to stay in the home longer than 3 years and 4 months, the buydown may be worth it.

Want help crunching the numbers? Use our mortgage payment calculator to get started.

Alternatives to rate buydowns

Not sure a buydown is right for you? Here are other ways to reduce your monthly payment:

• Negotiate the purchase price: A lower home price means a smaller loan amount and reduced payments.
• Consider an adjustable-rate mortgage (ARM): ARMs offer lower introductory rates (for 5, 7, or 10 years), which may be ideal if you plan to move or refinance soon.
• Refinance later: If rates fall, you can refinance to a lower rate. Learn more about refinancing a second mortgage if that’s part of your financial picture.

When does a buydown make sense?

A buydown might be the right move if:

• You plan to stay in the home long enough to reach the breakeven point
• The seller or builder is covering the cost
• You want to ease into homeownership with lower upfront costs
• You’re confident your income will increase after year one or two

But if you’re stretching your budget too thin or unsure how long you’ll stay in the home, it might be better to hold onto your cash or negotiate other terms.

Always ask your lender to explain the total cost of the loan, including both the buydown and the standard rate so that you can make an informed decision.

Explore rate buydown options with GO Mortgage

A mortgage rate buydown can be a smart way to make homeownership more affordable, whether for a few years or the life of your loan. But it’s not a one-size-fits-all solution.

At GO Mortgage, we help you explore all your options—from preapproval to buydowns to refinancing—so you can make the most informed decision for your financial future.

Thinking about buying a home or refinancing? Connect with a GO Mortgage loan officer today to see how a buydown could fit into your strategy.