{"post":{"slug":"mortgage-points-explained-2026","title":"Mortgage Points Explained 2026: When Buydowns Pay Off","excerpt":"Buying mortgage points trades cash upfront for a lower rate, but temporary buydowns work differently than permanent points. Here is the 2026 break-even math for both, across different holding periods.","category":"finance","date":"August 7, 2026","author":"ByteLedger Team","content":"<span class=\"dropcap\">M</span>ortgage points let you pay cash at closing in exchange for a lower interest rate, but \"buying down your rate\" actually covers two different products with very different math. Permanent discount points lower your rate for the entire loan term. Temporary buydowns, like a 2-1 buydown, only lower your rate for the first year or two before it steps back up to the note rate. Confusing the two is the most common mistake buyers make when a builder or seller offers to buy down their rate at closing.\n\n## How it works\n\nA discount point costs 1 percent of your loan amount and typically lowers your rate by a modest amount for the full life of the loan, the exact reduction varies by lender and market. A temporary buydown instead front-loads savings into the early years: a 2-1 buydown might lower your rate by two percentage points in year one, one percentage point in year two, then settle at the actual note rate from year three onward. The cash for a temporary buydown is often funded by the seller or builder as an incentive, not paid by the buyer.\n\n| Type | Duration | Who typically pays | Best for |\n| --- | --- | --- | --- |\n| Discount points | Life of the loan | Buyer | Long-term holders confident they will keep the loan |\n| 2-1 buydown | Rate drops for 2 years, then reverts | Seller or builder concession | Buyers expecting income to rise or a future refinance |\n| 3-2-1 buydown | Rate drops over 3 years, then reverts | Seller or builder concession | Larger short-term payment relief |\n\n## The break-even math, across holding periods\n\nFor permanent discount points, the whole decision comes down to one number: how many months until monthly savings repay the upfront cost.\n\nBreak-even months = cost of points divided by monthly payment savings\n\nHere is a hypothetical example on a round $350,000 loan. These figures are illustrative only, verify current rates and point pricing with your own lender.\n\n| Points bought | Upfront cost | Est. monthly savings | Break-even | Savings if held 10 years |\n| --- | --- | --- | --- | --- |\n| 0 | $0 | none | none | $0 |\n| 1 | $3,500 | ~$55 | ~64 months | ~$3,100 |\n| 2 | $7,000 | ~$110 | ~64 months | ~$6,200 |\n\nSell or refinance before the break-even month and the points cost you money. Hold well past it, and the savings compound in your favor every year after.\n\n## When each option makes sense\n\n- **Buy discount points** if you are confident you will hold the loan for seven-plus years and have cash to spare after your down payment and reserves.\n- **Take a seller-funded temporary buydown** if it is offered as a concession rather than something you pay for. Free payment relief in year one is rarely a bad deal.\n- **Skip paying for your own temporary buydown** in most cases. Since the lower rate expires, you are often better off directing that cash toward permanent points or a bigger down payment instead.\n- **Compare against a bigger down payment.** Extra cash toward principal reduces your loan size permanently and can also remove PMI, which sometimes beats either kind of buydown.\n\n## Common mistakes\n\n- **Assuming a temporary buydown is the same as a lower permanent rate.** The rate reverts to the original note rate after the buydown period ends, and the higher payment can be a shock if you did not plan for it.\n- **Paying for your own temporary buydown.** These products make the most sense when a seller or builder is covering the cost as an incentive, not when you are funding it yourself.\n- **Ignoring your real time horizon.** Buying permanent points only pays off if you hold the loan past the break-even point, guessing wrong turns a smart move into a wasted cost.\n- **Forgetting points are non-refundable.** If you sell or refinance early, the upfront cost of discount points does not come back.\n\n## FAQ\n\n**How much does one mortgage point cost?**\nOne point equals 1 percent of your loan amount, paid at closing. On a $350,000 loan that is $3,500. The rate reduction per point varies by lender.\n\n**What is a 2-1 buydown?**\nA temporary rate reduction, typically two percentage points lower in year one, one point lower in year two, then the loan reverts to its original note rate for the remaining term.\n\n**Who usually pays for a temporary buydown?**\nMost often the seller or builder, as a concession to make the home more attractive to buyers, though buyers can fund one themselves in some cases.\n\n**Are mortgage points tax deductible?**\nDiscount points are generally treated as prepaid mortgage interest and may be deductible if you itemize, but rules and eligibility vary, confirm with a tax professional.\n\n## Where to go next\n\nRate decisions do not stop at points. See [how mortgage rate locks work](/blog/rate-lock-explained-2026), compare loan terms in [15 vs 30 year mortgage](/blog/15-vs-30-year-mortgage-2026), and check what happens later in [ARM reset explained](/blog/arm-reset-explained-2026) if you are weighing a fixed rate against an adjustable one.","hue":274,"metaTitle":"Mortgage Points Explained: 2026 Buydown Math","metaDescription":"Mortgage points explained for 2026 — permanent discount points versus temporary buydowns, and the break-even math for each holding period.","keywords":["mortgage points explained","mortgage points 2026","2-1 buydown explained","temporary mortgage buydown","discount points break even","buying down your mortgage rate","permanent vs temporary buydown","mortgage rate buydown math","seller paid buydown"],"tldr":["**Discount points are permanent** — one point costs 1 percent of your loan and lowers your rate for the full term.","**Temporary buydowns are different** — a 2-1 buydown cuts your rate for a year or two, then reverts to the note rate.","**Break-even is the whole decision** — divide the upfront cost by monthly savings to see how many months until points pay off.","**Seller-funded buydowns are usually a free perk** — paying for your own temporary buydown is a different calculation entirely.","**Skip:** paying for your own temporary buydown when that cash could go toward permanent points or a bigger down payment instead."],"readTime":"4 min read","wordCount":872},"related":[{"slug":"what-is-a-mortgage-point-2026","title":"What Are Mortgage Points and Are They Worth It in 2026","excerpt":"Mortgage points let you pay cash upfront to lower your rate. 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