Discount points: a permanent rate reduction
One point equals 1% of the loan amount, paid at closing, in exchange for a lower rate for the life of the loan. How much the rate drops per point varies by lender and day.
| Hypothetical $400,000, 30-year fixed | Rate | Principal & interest |
|---|---|---|
| No points | 6.75% | $2,594.39 |
| 1 point ($4,000) | 6.50% | $2,528.27 |
| Monthly savings | — | $66.12 |
| Break-even | — | About 61 months |
Rates are illustrative only, not a quote. If the buyer is likely to sell or refinance within about five years in this example, the point may not pay off.
Temporary buydowns (2-1 and 1-0)
A temporary buydown lowers the payment for the first year or two using funds deposited at closing, often paid by the seller or builder. The note rate does not change.
| 2-1 buydown on $400,000 at a 6.75% note rate | Effective rate | Principal & interest | Subsidy |
|---|---|---|---|
| Year 1 | 4.75% | $2,086.59 | $507.80/mo |
| Year 2 | 5.75% | $2,334.29 | $260.10/mo |
| Years 3–30 | 6.75% | $2,594.39 | — |
| Approximate cost of the buydown | $9,214.85 |
- For conventional loans, the borrower is qualified at the full note rate, not the bought-down rate.
- Seller- or builder-paid buydown funds count as interested party contributions and must fit within program limits.
- If rates fall, a refinance may end the buydown early; ask how unused funds are handled.
Which option fits
| Option | Best when | Watch for |
|---|---|---|
| Discount points | Buyer plans to keep the loan well past the break-even | Cash at closing; a refinance resets the math |
| Temporary buydown | Buyer expects income to rise or wants early-year relief | Payment steps up; qualifying at the note rate |
| Seller credit toward costs | Buyer needs help with closing costs more than rate | Program caps; cannot replace the down payment |
| Lender credit (higher rate) | Buyer is short on cash and may refinance soon | Higher payment for as long as the loan lasts |
Related: seller concessions by loan type · Hometown Heroes and points.
Questions clients ask
Are points tax-deductible?
Sometimes. Deductibility depends on your situation; ask a tax professional. RFG does not give tax advice.
Can a seller pay for a buydown?
Often, yes, within the program’s interested party contribution limits. The buydown must be documented in the contract and closing figures.
Does a temporary buydown help me qualify for a higher price?
Not on a conventional loan. Qualification is based on the full note rate.
Sources and editorial information
Published by The Rice Financial Group. Editorial update: November 10, 2026. How we prepare our resources.
- CFPB: lender credits and discount points
- Fannie Mae: temporary interest rate buydowns
- Fannie Mae: qualifying payment requirements
- Fannie Mae: interested party contributions
Educational information, not an approval, rate quote or commitment to lend. Program rules, pricing and availability can change. Confirm the requirements for your borrower, property and transaction with the mortgage team.
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