Definition
You pay upfront fees (discount points) to reduce your interest rate. Each point costs 1% of the loan and typically reduces your rate 0.25%. It's a trade-off: more cash upfront for lower monthly payments.
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1 point = 1% of loan amount. Each point reduces rate 0.25% typically. Seller often pays buydown as concession. Buyer cost = points x 1% of loan amount. Break-even calculation determines value. Long holding period favors buydown. Short holding period disfavors buydown. Professional calculation supports decision. Tax deductibility for owner-occupied. Strategic negotiation in contracts. Popular cost-reduction strategy.
Pro Tip
Calculate break-even for buydowns. Longer holding periods make buydowns more attractive.
Example
2-point buydown cost $8,000 reducing rate from 4.5% to 4.0% saving $100 monthly.