Discount Points or Rate Buydown

Mar 29

What are mortgage discount points?

Discount points are an upfront cost paid in exchange for a lower mortgage interest rate. One point equals 1% of the loan amount: on a $500,000 mortgage, one point costs $5,000. That does not mean the rate drops by one percentage point; request the actual priced options for your loan.

A simple break-even example

Suppose paying $5,000 in points reduces the monthly principal-and-interest payment by $100 compared with an otherwise comparable option. Dividing $5,000 by $100 gives a simple break-even of 50 months. Selling or refinancing before then would mean the payment savings had not recovered the upfront points.

This example is hypothetical, not a current rate offer. A fuller comparison also considers the remaining principal balance, the value of keeping cash available, and your actual timeline. Use the same loan amount and term when comparing options.

Permanent points versus temporary buydowns

Discount points on a fixed-rate mortgage reduce the note rate for the loan’s term. A temporary buydown instead subsidizes payments during an introductory period. Review the payment schedule and what you will owe after the subsidy ends. See our guide to temporary rate buydowns for that separate option.

What to ask when comparing offers

What rate is available with zero discount points?
How much do the points cost in dollars?
What are the monthly payment, APR, total closing costs, and cash to close?
Are the loan amount, term, loan type, and rate-lock period comparable?
How long would I need to keep this loan to recover the extra upfront cost?

Request Loan Estimates that reflect the options you actually want. The lowest advertised rate may require more cash at closing. If preserving cash matters more, compare lender-credit options too.

For a side-by-side review, request a mortgage quote. Bring your expected ownership timeline and the amount of savings you want to retain after closing.

Sources: Federal Reserve mortgage glossary, CFPB guidance on comparing loan offers, and Fannie Mae temporary buydown guidance. Reviewed September 16, 2026.