Mortgage Points & Rate Buydowns: When Paying More Upfront Actually Pays Off
A mortgage point is prepaid interest: you pay 1% of your loan amount at closing, and in exchange your rate drops — typically somewhere around 0.25%, though it varies day to day and lender to lender. Whether that trade is brilliant or a waste of money comes down to one thing: how long you'll keep the loan. Keep it past the break-even point and the math works in your favor every month after. Sell or refinance early and you paid for a discount you never fully used. Here's how to run the numbers like a pro — including the 2-1 temporary buydowns every Sacramento builder is advertising right now.
Permanent buydowns: buying points 101
On a $500,000 loan, one point costs $5,000. Say it lowers your rate from 6.625% to 6.375%. Your principal-and-interest payment drops by about $83 a month. Divide the cost by the savings: $5,000 ÷ $83 ≈ 60 months. That's your break-even — roughly five years. Keep the loan longer than that and the point earns its keep; over a full 30 years it saves nearly $25,000 in interest.
Question
Points Make Sense If...
Skip the Points If...
How long will you stay?
7+ years in the home and loan
You may move or refi within ~5 years
Where are rates headed?
You believe rates stay flat or rise
You expect to refinance when rates drop
Cash position?
Strong reserves even after closing
Points would drain your emergency fund
Who's paying?
Seller or builder credits cover them
It's your own cash and DTI already works
That last row is the cheat code. Seller concessions can pay for your points. In Sacramento's softer 2026 market, negotiating a seller credit and spending it on a permanent rate buydown often beats an equivalent price reduction — a $10,000 price cut saves you roughly $65 a month, while $10,000 in points can save $150 or more.
Temporary buydowns: the 2-1 everyone's advertising
A 2-1 buydown is different. Your actual note rate stays the same, but a lump sum deposited at closing subsidizes your payment: you pay as if the rate were 2% lower in year one and 1% lower in year two, then the full rate from year three on. On a $500,000 loan at 6.5%, that looks like:
Period
Effective Rate
Approx. P&I Payment
Monthly Relief
Year 1
4.5%
$2,533
$627 lower
Year 2
5.5%
$2,839
$321 lower
Years 3–30
6.5% (note rate)
$3,160
—
Two rules keep this honest. First, the seller or builder funds it — that's standard; if you're funding your own temporary buydown, buy points instead. Second, you must qualify at the full note rate, not the teaser. The buydown is breathing room while you settle in, not a way to stretch into a payment you can't actually afford. And here's a nice wrinkle: if you refinance before the subsidy runs out, the unused funds are typically credited back against your loan balance. You don't lose them.
Points vs. 2-1 buydown vs. bigger down payment
• Permanent points win when you'll hold the loan a long time and want the lowest lifetime cost.
• A 2-1 buydown wins when a builder or seller is paying and you value early-year cash flow — new furniture, landscaping, the works.
• A bigger down payment wins when it removes PMI or drops you into a better pricing tier. Sometimes $10,000 more down beats $10,000 in points; a good loan officer will show you both.
If you read our guide on builders' preferred lenders, you already know the incentive fine print matters. A "$25,000 incentive" that's actually a temporary buydown on an above-market rate can be worth less than a clean loan at a sharper rate. Always compare the note rate, not the year-one payment.
Time-sensitive figures (July 2026): examples assume rates in the mid-6% range (Freddie Mac 30-year average: 6.55% for the week of July 16, 2026). The value of a point varies daily — one point does not always equal exactly 0.25% off the rate, and pricing differs by loan size, credit score, and program. Get a same-day quote showing multiple rate/point combinations before deciding.
FAQ: mortgage points and buydowns
Are mortgage points tax-deductible?
Points on a purchase loan for your primary residence are often deductible in the year paid, subject to IRS rules — confirm with your tax professional.
How much does one point lower my rate?
Commonly around 0.25%, but it floats with the market. Some days a point buys 0.375%; some days barely 0.125%. That's why comparing full rate sheets beats rules of thumb.
Can I buy half a point?
Yes — points come in fractions. Sometimes a half point hits a pricing sweet spot that a full point doesn't.
What happens to my 2-1 buydown if I refinance in year two?
Unused buydown funds are generally applied to your payoff. You keep the benefit; you don't forfeit it.
Should I take the builder's rate incentive or negotiate a price cut?
Run both against a competing loan offer. Sometimes the incentive is genuinely great; sometimes a price reduction plus your own financing wins by thousands. Ten minutes of math protects a 30-year decision.
Want a side-by-side of your rate with zero points, one point, and a seller-paid buydown?
Call The Chris Kennedy Team at (916) 794-0777 or visit thechriskennedyteam.com to get started. Serving Sacramento, Placer, El Dorado, and Yolo counties.
The Chris Kennedy Team | Reliant Lending | NMLS #971546. Equal Housing Opportunity. This article is for educational purposes only and is not a commitment to lend. Rates, program guidelines, and figures referenced are subject to change without notice. Contact a licensed loan officer for current terms and a personalized quote. Not tax or legal advice — consult a qualified professional regarding your specific situation.