Mortgage Rate Buy-Down 2026: Temporary vs Permanent - Is It Worth the Cost?
Mortgage rates are at 6.5%. Your $400,000 loan costs $2,528/month. But what if you could drop that to 4.5% and pay only $2,027/month - saving $501/month?
Rate buy-down lets you pay upfront to lower your interest rate, either temporarily (2-1 buy-down, 1-0 buy-down) or permanently (discount points). The catch? It costs $8,000-$16,000 upfront.
This guide breaks down exactly how buy-downs work, the math on temporary vs permanent, break-even analysis, and when it makes sense vs when you should skip it.
What Is a Mortgage Rate Buy-Down?
Rate buy-down means you pay money upfront to reduce your mortgage interest rate. There are two types:
Temporary Buy-Down
Lower rate for 1-3 years, then resets to original rate.
- 2-1 buy-down: 2% lower Year 1, 1% lower Year 2, normal Year 3+
- 1-0 buy-down: 1% lower Year 1, normal Year 2+
- 3-2-1 buy-down: 3% lower Y1, 2% lower Y2, 1% lower Y3, normal Y4+
Permanent Buy-Down
Lower rate for entire 30-year loan term.
- Discount points: Pay 1% of loan = 0.25% rate reduction
- Example: Pay $8,000 (2 points) = 0.5% lower rate for 30 years
- Permanent savings: Lower payment every month forever
Temporary Buy-Down: How It Works (2-1 Example)
Real Example: 2-1 Buy-Down on $400K Loan
Scenario: You're buying a $400K home. Market rate is 6.5%. Seller offers to pay for 2-1 buy-down.
| Year | Rate | Monthly Payment | Savings vs 6.5% |
|---|---|---|---|
| Year 1 | 4.5% | $2,027 | -$501/month |
| Year 2 | 5.5% | $2,271 | -$257/month |
| Year 3-30 | 6.5% | $2,528 | $0 |
Total savings over 2 years: ($501 × 12) + ($257 × 12) = $9,096
Cost of 2-1 buy-down: ~$8,000 (2% of loan amount)
Net benefit: $1,096 profit (if you stay 2+ years)
Who Pays for Temporary Buy-Down?
✅ Seller-Paid (Most Common)
Seller pays $8,000 at closing to buy down your rate. This is a seller concession to make the deal more attractive.
Why sellers do this: Easier to sell in high-rate environment. Buyers qualify for more with lower payment.
✅ Buyer-Paid (Less Common)
You pay $8,000 at closing to lower your payment. Makes sense if you need lower payment to qualify or plan to sell/refinance in 2-3 years.
✅ Lender-Paid (Rare)
Lender pays buy-down in exchange for higher rate later. Usually not worth it.
Permanent Buy-Down: How Discount Points Work
Discount points are a permanent buy-down. You pay upfront to lower your rate for the entire 30-year loan.
Real Example: Buying 2 Points on $400K Loan
Standard rate: 6.5% = $2,528/month
Buy 2 points: Pay $8,000 (2% of $400K) = 0.5% rate reduction
New rate: 6.0% = $2,398/month
Monthly savings: $2,528 - $2,398 = $130/month
Break-even: $8,000 ÷ $130 = 61 months (5.1 years)
Total savings over 30 years: $130 × 360 = $46,800
Net profit: $46,800 - $8,000 = $38,800 (if you keep loan 30 years)
Discount Points Pricing (2026 Rates)
| Points Paid | Cost ($400K Loan) | Rate Reduction | New Rate |
|---|---|---|---|
| 0 points | $0 | 0% | 6.5% |
| 1 point | $4,000 | -0.25% | 6.25% |
| 2 points | $8,000 | -0.5% | 6.0% |
| 3 points | $12,000 | -0.75% | 5.75% |
When Buy-Down Makes Sense (vs When to Skip)
✅ Buy-Down MAKES SENSE If...
- +You'll stay 5+ years: Break-even on permanent buy-down is 5-6 years
- +Seller pays for it: Free money - always accept seller-paid buy-down
- +You need lower payment to qualify: Temporary buy-down helps you qualify
- +Rates are high (6%+): More valuable when rates are elevated
- +You have extra cash: Better ROI than most investments (5-8% return)
❌ SKIP Buy-Down If...
- -You'll sell/refinance in 2-3 years: Won't reach break-even
- -Rates will drop soon: Better to refinance later than buy down now
- -You need cash for down payment: Don't drain savings for buy-down
- -You have high-interest debt: Pay off credit cards first (20% APR)
- -Lender charges excessive points: Some lenders overcharge (0.125% per point)
Break-Even Calculator: Is It Worth It?
Simple Break-Even Formula
Break-Even Months = Cost of Buy-Down ÷ Monthly Savings
Example: $8,000 ÷ $130/month = 61 months (5.1 years)
Rule of thumb:
- If break-even < 5 years: Good deal
- If break-even 5-7 years: Depends on your plans
- If break-even > 7 years: Skip it
Frequently Asked Questions
Can I refinance after getting a buy-down?
Yes. If rates drop, you can refinance anytime. However, you'll lose the buy-down benefit. That's why temporary buy-downs are safer - if rates drop in Year 2, you can refinance without losing much.
Are discount points tax deductible?
Yes, for primary residence purchases. You can deduct points in the year paid (if certain conditions met) or amortize over loan life. Consult tax advisor.
What's better: 2-1 buy-down or permanent buy-down?
Depends on your timeline. If you'll sell/refinance in 2-3 years, choose 2-1 buy-down (lower cost, faster break-even). If you'll stay 10+ years, choose permanent buy-down (bigger long-term savings).
Can I negotiate seller to pay for buy-down?
Absolutely. In buyer's markets (high rates, slow sales), sellers often agree to pay 1-2% in concessions for buy-down. Include in your offer: "Seller to pay $8,000 toward 2-1 buy-down."
Should I buy down my rate or make larger down payment?
Usually larger down payment. Avoiding PMI (20% down) saves more than buy-down. But if you already have 20% down and extra cash, buy-down can be smart.
Ready to Lower Your Mortgage Rate?
Compare lenders offering buy-down options and calculate your exact savings.
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The Bottom Line
Rate buy-down can save you thousands, but only if the math works. Temporary buy-downs (2-1, 1-0) are great if seller pays or you plan to refinance in 2-3 years. Permanent buy-downs (discount points) make sense if you'll stay 5+ years.
The key is break-even analysis: divide buy-down cost by monthly savings. If break-even is under 5 years and you'll stay that long, it's usually worth it.
Always negotiate seller-paid buy-down in your offer. In today's high-rate environment, it's one of the best ways to make homeownership more affordable without waiting for rates to drop.
Disclosure: This article contains affiliate links. All information is accurate as of February 21, 2026. Buy-down costs and rate reductions vary by lender and market conditions. This is not financial advice. Consult a mortgage professional for guidance specific to your situation.