Mortgage Points Buydown 2026: Are Discount Points Worth It?
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What Mortgage Points Cost and Buy
One discount point costs 1% of the loan amount and typically reduces your rate by 0.25%. On a $400,000 loan, one point = $4,000 upfront for roughly a quarter-point rate cut. Lenders may also offer fractional points (0.5) or allow buying up to 2-3 points.
Points are prepaid interest: you pay cash now to pay less interest over time. They are distinct from origination fees (lender charges, no rate benefit) — always check the Loan Estimate to see which is which.
The "one point buys a quarter percent" rule is only a rough average - the actual exchange rate varies daily and by lender. In 2026 markets, some lenders offer 0.375% per point on certain loan products, while others offer as little as 0.125%, usually when rates are volatile and lenders pad their margins. Always compute your implied price: divide the point cost by the rate reduction in eighths. Paying $4,000 for 0.25% costs $2,000 per eighth; paying $4,000 for 0.125% costs $4,000 per eighth - double the price for the same benefit. Get the quote in writing as "rate per point" before comparing lenders.
Points also work in reverse through lender credits, which are simply negative points. Accepting a rate 0.25% above par might earn you a $4,000 lender credit toward closing costs on a $400,000 loan - mathematically identical to buying a point, but in your favor at closing. This is the right move when you are cash-light at closing or expect to refinance within three years: you collect cash now instead of prepaying interest you may never live long enough in the loan to recover.
Breakeven Math: A Real Comparison
Scenario: $400,000, 30-year fixed. Option A: 6.75%, 0 points ($0 upfront). Option B: 6.50%, 1 point ($4,000 upfront).
| 0 Points (6.75%) | 1 Point (6.50%) | |
|---|---|---|
| Monthly P&I | $2,594.39 | $2,528.27 |
| Monthly savings | — | $66.12 |
| Upfront cost | $0 | $4,000 |
| Breakeven | — | 60.5 months (~5 years) |
| 10-year net benefit | — | +$3,934 |
If you keep the loan longer than 5 years, buying the point wins. Sell or refinance before month 60, and you lose money. The longer you stay, the better points look — at 15 years the net benefit exceeds $7,800.
Taxes meaningfully shorten the breakeven on purchase-money points. Points paid on a primary-residence purchase are generally deductible in the year paid. That $4,000 point, deducted at a 24% marginal rate, returns $960 at tax time - making your effective outlay $3,040. Divide by the $66.12 monthly savings and breakeven falls from 60.5 months to about 46 months. Refinances get worse treatment: points must be amortized over the loan life, so a refinanced point deducts roughly $133/year instead. Run your breakeven after tax, not before.
The second point usually buys less than the first - diminishing returns are built into lender pricing. A typical 2026 quote sheet might show 0 points at 6.75%, 1 point at 6.50%, and 2 points at 6.375%: the first point earns 0.25%, the second only 0.125%. Breakeven on point two alone stretches past 100 months. Unless you are certain to hold the loan 10+ years, buying more than one point rarely survives honest math. Price each point incrementally, never as a bundle.
Temporary Buydowns: 2-1 and 1-0 Structures
A 2-1 buydown lowers your rate 2% in year 1 and 1% in year 2, then it jumps to the full note rate. On a 6.75% note, you pay 4.75% in year 1 and 5.75% in year 2.
Who pays? Usually the seller or builder funds the buydown as a concession — it costs them less than a price cut and helps you qualify at the lower initial payment. The funds sit in escrow and subsidize your payments.
Watch out: you must qualify at the full note rate (not the bought-down rate) under most 2026 guidelines, and when year 3 arrives your payment jumps. Budget for the real payment from day one.
Put real dollars on the 2-1 buydown subsidy to see why sellers love it. On a $400,000 loan at a 6.75% note rate, the year-1 payment at 4.75% is about $2,087 versus $2,594 at full rate - a $507 monthly subsidy. Year 2 at 5.75% saves roughly $255/month. Total escrowed subsidy: about $9,150. Compare that to a $15,000 price reduction, which only cuts the payment by roughly $95/month permanently. The buydown delivers five times the payment relief in the years the buyer feels it most, which is why builders in 2026 routinely offer buydowns instead of cutting prices - it preserves their comparable sales prices.
Buyers can stack strategies: take the seller-funded 2-1 buydown and simultaneously buy a permanent discount point with your own cash. The point lowers the note rate itself - say from 6.75% to 6.50% - and the buydown schedule applies beneath it, giving you 4.50% in year 1 and 5.50% in year 2. Just remember the qualification rule: under most 2026 guidelines you must qualify at the full 6.50% note rate, so the buydown helps your wallet, not your approval. Budget from day one for the year-3 payment, and consider parking the monthly savings into an emergency fund rather than lifestyle.
Decision Rules for 2026 Borrowers
- Staying 7+ years? Buying 1-2 points usually pays. Compute your exact breakeven first.
- May move or refinance in 3-5 years? Skip points; keep the cash for moving costs or reserves.
- Cash-constrained at closing? Points compete with your emergency fund. Liquidity beats a slightly lower rate.
- Tax angle: Points on a purchase mortgage are generally deductible in the year paid; on a refinance they must be amortized over the loan life. Confirm with a tax professional.
- Negotiate: Ask the lender for a "no-point" quote and a "1-point" quote side by side — the implied rate-per-point varies by lender.
Refinance probability should enter the decision explicitly. Suppose there is a 60% chance you refinance within three years if rates fall a point. Your $4,000 point then has a 60% chance of returning roughly $2,380 in savings (36 months × $66.12) and a 40% chance of full 5-year-plus payback. Expected value: deeply negative - you would lose about $1,600 on average. Points are a bet on staying put; in a high-rate environment like 2026 where many borrowers actively hope to refinance, that bet is often wrong. Only buy points when your probability-weighted holding period clears breakeven.
Finally, compare points against simply putting that cash toward principal. The $4,000 point saves $66.12/month ($23,800 over 30 years). Applying $4,000 directly to principal on day one saves about $14,200 in interest and shortens the loan by 5 months - less total savings, but with a crucial advantage: the principal reduction is recovered immediately if you sell or refinance, while the point's value evaporates. If there is any real chance you move within five years, the principal payment dominates the point on a risk-adjusted basis.
Frequently Asked Questions
Typically 0.25%, but it varies by lender and market — sometimes 0.125% to 0.375%. Always get the exact rate quote with and without points.
Points paid on a home purchase are generally deductible as mortgage interest in the year paid. Points on a refinance must be deducted ratably over the loan term.
Yes, within seller concession limits (typically 3-6% of price depending on loan type and down payment). This is common in buyer's markets.
Often yes — the breakeven is similar, but because the rate discount applies to a shorter, larger-payment loan, the dollar savings accumulate faster.
Points cost you money to lower the rate. Lender credits do the reverse: you accept a higher rate and the lender gives you cash toward closing costs.