Mortgage Points 2026: Are Buydowns Worth It? (Calculator + Complete Guide)

Break-Even Calculator: Are Points Worth It?

Complete Break-Even Analysis

Scenario	No Points	1 Point	2 Points
Loan Amount	$300,000	$300,000	$300,000
Interest Rate	6.50%	6.25%	6.00%
Points Cost	$0	-$3,000	-$6,000
Monthly Payment	$1,896	$1,847	$1,799
Monthly Savings	-	$49/mo	$97/mo
Break-Even	-	61 months (5.1 yrs)	62 months (5.2 yrs)
Total Savings (30 yrs)	-	+$14,640	+$28,920

💡 Verdict: If you stay 5+ years, buying points saves money. 2 points = save $29K over 30 years! But if you sell/refinance in 3 years, you lose money.

Simple Break-Even Formula

Break-Even = Points Cost ÷ Monthly Savings

Example: $6,000 points cost ÷ $97 monthly savings = 62 months (5.2 years)

Rule of thumb: If break-even <5 years AND you plan to stay 7+ years = BUY POINTS. If break-even >7 years OR you might move soon = DON'T BUY.

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Types of Mortgage Points

1. Discount Points (Permanent Buydown)

What it is: Pay upfront to permanently lower your rate for entire loan term. Most common type of points.

📊 Example

Loan: $300,000

Base Rate: 6.50%

Buy 2 Points: $6,000

New Rate: 6.00% (permanent for 30 years)

Monthly Savings: $97

Lifetime Savings: $28,920

✅ PROS

• Permanent rate reduction
• Save thousands long-term
• Lower monthly payment
• Tax deductible (spread over loan life)

❌ CONS

• High upfront cost
• 5+ year break-even
• Lose money if sell/refinance early
• Cash could be used elsewhere

2. Temporary Buydown (2-1, 3-2-1)

What it is: Lower rate for first 1-3 years, then increases to full rate. Often seller-paid to help buyers qualify.

📊 2-1 Buydown Example

Loan: $300,000 at 6.50%

Year 1: 4.50% rate = $1,520/month (save $376/mo)

Year 2: 5.50% rate = $1,703/month (save $193/mo)

Year 3+: 6.50% rate = $1,896/month (full rate)

Total Cost: ~$6,828 (usually seller-paid)

✅ PROS

• Lower initial payment
• Easier to qualify (lower DTI)
• Often seller-paid (no cost to you)
• Good if income will increase

❌ CONS

• Payment increases later
• Only temporary savings
• Must qualify at full rate
• Payment shock risk

3. Origination Points (Lender Fees)

What it is: Lender fees for processing loan. NOT a rate buydown. Just a cost. Avoid if possible.

⚠️ Warning: Origination points = pure cost, no rate reduction. Example: 1% origination fee on $300K = $3,000 cost. Negotiate: Many lenders waive origination fees. Compare lenders with no origination fees.

When to Buy Points vs When to Skip

✅ BUY POINTS IF:

• Long-term home: Plan to stay 7+ years (break-even ~5 years)
• Have extra cash: Can afford upfront cost without depleting savings
• Lower payment needed: Want lower monthly payment for budgeting
• Rates are high: 6.5%+ rates = more savings from buydown
• Tax benefit: Can deduct points (itemize, use for home purchase)
• No better use: Cash won't earn more than rate reduction

❌ SKIP POINTS IF:

• Short-term home: Plan to sell/move in <5 years
• Might refinance: Rates expected to drop = refinance soon
• Low cash: Need money for down payment, closing costs, reserves
• Better investments: Can earn >6% return elsewhere
• High debt: Should pay off credit cards (19% rate) first
• Emergency fund: Don't have 3-6 months expenses saved

Frequently Asked Questions

How much does 1 mortgage point lower your rate?

1 point typically lowers rate by 0.25%. Example: $300K loan, buy 1 point ($3,000) = 6.50% → 6.25% rate. Varies by lender: Some offer 0.20%, others 0.30% per point. Factors: Credit score (higher = better reduction), loan type (conventional, FHA, VA), market conditions. Multiple points: 2 points = 0.50% reduction, 3 points = 0.75% reduction. Diminishing returns: Each additional point gives slightly less reduction. Ask lender: "What's your rate reduction per point?" Compare point options from multiple lenders.

Are mortgage points tax deductible?

Yes, but with conditions. Purchase: Fully deductible in year paid if: (1) Used to buy/build primary residence, (2) Points are normal in your area, (3) You itemize deductions, (4) Paid from your own funds (not rolled into loan). Refinance: Must deduct over life of loan. Example: $3,000 points on 30-year refi = deduct $100/year. 2026 rules: Standard deduction $14,600 (single), $29,200 (married). Must have >$29,200 in itemized deductions to benefit. Calculation: Points + mortgage interest + property taxes + state taxes. Consult tax advisor: Rules complex, varies by situation.

Can the seller pay for mortgage points?

Yes! Seller-paid points = common negotiation strategy. How it works: Seller pays points at closing as concession. Lowers your rate without using your cash. Limits: Conventional = 3% of purchase price max, FHA = 6% max, VA = 4% max. Example: $400K home, seller pays 2 points ($8,000) = 6.5% → 6.0% rate. Your payment drops $129/month. Negotiation: Instead of price reduction, ask for rate buydown. Benefit: Lower payment for life of loan vs one-time price cut. 2-1 buydown: Seller often pays for temporary buydown ($6K-$8K) to help you qualify. Ask your agent: Include in offer.

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