Rate Buydown vs. Bigger Down Payment: Which Saves More in 2026?
With 30-year mortgage rates near 6.25–6.45% in May 2026, buyers with extra cash face a real fork in the road: use it to buy down the rate, or put more down on the home. Both lower the monthly payment — but they don't lower it equally. On a $550,000 Sacramento home, a rate buydown typically saves more month-to-month than adding to the down payment. The right answer depends on how long you'll keep the loan, whether the seller is paying, and your bigger financial picture. Here's the math, side by side.
The Two Most Common Cash Decisions in Today's Market
Every buyer with extra cash hits this fork in the road. You've saved more than the minimum down payment — now what's the smartest place to put it?
The two main options:
Buy down your interest rate. Pay points upfront in exchange for a permanently lower rate, or use seller credits for a temporary 2-1 or 3-2-1 buydown.
Increase your down payment. Put more money toward the home, reducing the loan balance and shrinking the monthly payment.
Both lower your monthly payment. But they do it differently — and one usually wins, depending on the situation. Let's run the numbers.
The Setup: A Real Sacramento Scenario
Here's the example we'll work with throughout this post. The numbers are rounded for clarity and reflect today's market.
Home price: $550,000 (a realistic Sacramento or Placer County price point)
Base down payment: 5% ($27,500)
Loan amount: $522,500
30-year fixed rate today: 6.5% (using a slightly conservative number)
Extra cash available: $11,000 (roughly 2% of the home price)
Now let's compare the three options.
Option 1: Standard 5% Down, No Buydown
Loan amount: $522,500
Rate: 6.5%
Principal + Interest payment: about $3,302/month
This is the baseline.
Option 2: 5% Down + Use $11,000 to Buy Down the Rate
A discount point typically costs 1% of the loan amount and reduces the rate by roughly 0.25%. So $11,000 (about 2 points) could lower the rate from 6.5% to about 6.0%.
Loan amount: $522,500
Rate: 6.0%
Principal + Interest payment: about $3,132/month
Monthly savings vs. Option 1: about $170
Over the life of the loan, that's roughly $61,000 in interest saved — assuming you keep the loan for the full 30 years.
Option 3: Put the $11,000 Toward a Bigger Down Payment
Same $11,000 — but applied to the down payment instead.
Down payment: $38,500 (7%)
Loan amount: $511,500
Rate: 6.5% (unchanged)
Principal + Interest payment: about $3,233/month
Monthly savings vs. Option 1: about $69
That's a real savings — but less than half the savings of the rate buydown.
Which One Wins?
In this scenario, the rate buydown saves about $100 more per month than putting the same cash toward the down payment.
StrategyMonthly P&IMonthly Savings vs. Baseline5% down at 6.5% (baseline)$3,302—5% down + 2 points buydown to 6.0%$3,132$1707% down at 6.5%$3,233$69
The buydown wins because lowering the interest rate affects every dollar of the loan for the full term. Putting more down only reduces the balance — the rate still applies to whatever's left.
That said, this isn't a universal answer. Here's where it gets interesting.
When a Bigger Down Payment Actually Wins
A larger down payment is usually the better move when one of these is true:
You're close to crossing 20% down. Hitting 20% eliminates private mortgage insurance (PMI), which can add $150–$300 a month. Skipping PMI often beats any rate buydown.
You plan to refinance in 1–3 years. Buying down a rate you'll refinance out of is wasted money. A bigger down payment reduces principal permanently.
You want to qualify for a tighter debt-to-income ratio. A lower loan amount can be the difference between approval and denial on some files.
You're worried about appraisal gaps. More down means less risk if the appraisal comes in low.
When a Rate Buydown Almost Always Wins
The buydown is typically the better move when:
You plan to keep the home (or the loan) for 5+ years. That's usually long enough to recover the upfront cost.
The seller is paying for it. This is the big one in today's market. With nearly half of Sacramento sales including seller concessions, a seller-paid buydown is essentially free money toward a lower monthly payment.
Cash flow matters more than equity. A lower monthly payment is the same cash in your pocket every month for as long as you own the home.
You're already at 20% down. You can't gain by adding more — buydown is the better use.
The Secret Weapon: Seller-Paid Buydowns
Here's what most buyers don't realize: in today's Sacramento market, you often don't have to spend your own money on a buydown.
Sellers are increasingly willing to offer credits at closing — and those credits can fund a temporary or permanent rate buydown. The most common structures:
2-1 buydown: Rate is 2% lower in year 1, 1% lower in year 2, full rate in year 3 onward. Great for buyers expecting income growth.
Permanent buydown: Seller credits buy down the rate for the full loan term. Best long-term value.
On a $550,000 home, a 2% seller credit ($11,000) toward a permanent buydown could save the same buyer the $170/month shown in Option 2 — without any extra cash out of pocket. That's where the real magic happens in this market.
The Break-Even Question
The honest answer to "which is better" almost always comes down to one calculation: how long does it take for the upfront cost of the buydown to pay for itself in monthly savings?
In the example above:
Upfront cost of buydown: $11,000
Monthly savings: $170
Break-even: about 65 months (5.4 years)
If you plan to keep the loan less than 5 years, the bigger down payment may win. If you plan to stay longer — or the seller is paying — the buydown wins almost every time.
FAQ: Buydown vs. Down Payment
Is it better to buy down the rate or put more money down? For most buyers staying 5+ years, a rate buydown saves more than the same cash put toward a bigger down payment. The math flips if it gets you to 20% down (eliminating PMI) or if you plan to refinance soon.
How much does it cost to buy down a mortgage rate by 1%? Roughly 3–4 discount points, depending on the lender and market conditions. One point is typically 1% of the loan amount and lowers the rate by about 0.25%.
What is a 2-1 buydown? A temporary buydown where the rate is 2% lower in year 1, 1% lower in year 2, and the full rate from year 3 onward. Often funded by seller concessions.
Can the seller pay for my rate buydown? Yes. Seller credits can be used to fund both temporary and permanent buydowns. In today's Sacramento market, this is one of the most common negotiation tools.
Does a bigger down payment lower my interest rate? Sometimes, slightly — putting 20% down typically removes PMI and can qualify you for slightly better pricing tiers. But the rate change is usually small compared to a true buydown.
Should I put 20% down to avoid PMI? If you can hit 20% comfortably without draining your savings, yes — eliminating PMI is one of the highest-return uses of cash. If reaching 20% would leave you cash-poor, a smaller down payment plus a buydown often makes more sense.
How long does it take to break even on a rate buydown? Typically 4–6 years, depending on the cost of points and the rate reduction. If you're staying longer than that, the buydown pays for itself and then some.
The Bottom Line
There's no universal right answer — only the right answer for your situation. But in today's Sacramento market, with sellers willing to fund credits and rates still well above pre-pandemic lows, a rate buydown is winning the math for most long-term buyers. A bigger down payment wins for the buyers chasing 20% to drop PMI or planning a quick refinance.
The best way to know which wins for you: run both scenarios with real numbers, real pricing, and your actual goals. That's a 10-minute call.
Reach out at (916) 794-0777 or thechriskennedyteam.com to compare side-by-side scenarios on a Sacramento, Placer, El Dorado, or Yolo County purchase — and see if a seller-paid buydown could be on the table for your offer.