With mortgage rates hovering in the 6% range heading into 2026, every fraction of a percent matters. A quarter-point reduction might not sound like much, but on a $400,000 loan, it can mean $50,000+ in savings over the life of your mortgage.
That's where permanent buydowns come in.
A permanent buydown—also known as buying discount points—lets you pay an upfront fee at closing to lock in a lower interest rate for the entire life of your loan. But here's the catch: it only makes sense in certain situations.
This guide will walk you through exactly how permanent buydowns work, when they make financial sense, and how to use our calculator to run the numbers for your specific situation. By the end, you'll know whether paying points is a smart move—or an expensive mistake.
Key Takeaways
How permanent buydowns differ from temporary buydowns
The exact math behind break-even calculations
When buying points makes sense (and when it doesn't)
How to use our buydown calculator to make a data-driven decision
What Is a Permanent Buydown?
A permanent buydown is an upfront payment you make at closing to reduce your mortgage interest rate for the entire loan term. This payment is made in the form of "discount points."
Understanding Discount Points
Here's how discount points work:
- 1 point = 1% of your loan amount
- Each point typically reduces your rate by 0.25% (this varies by lender)
- Points are paid at closing and are non-refundable
- The rate reduction lasts for the life of the loan
Example: On a $400,000 loan, 1 point costs $4,000 and might reduce your rate from 6.5% to 6.25%.
The Trade-Off
You're essentially prepaying interest. You pay more upfront in exchange for lower monthly payments. The key question is: will you stay in the home long enough to recoup that upfront cost through monthly savings?
This is called the "break-even point"—and it's the most important number in your decision.
Permanent vs. Temporary Buydowns: Key Differences
Before diving into the calculator, it's important to understand how permanent buydowns differ from temporary options like 2-1 or 3-2-1 buydowns.
| Feature | Details |
|---|---|
| Duration | Life of the loan |
| How it works | Pay upfront fee to reduce rate permanently |
| Refundable | No—points are non-refundable |
| Who pays | Usually the buyer |
| Qualification | Qualify at the reduced rate |
| Best for | Long-term homeowners (7+ years) |
| Feature | Details |
|---|---|
| Duration | 1-3 years only |
| How it works | Funds held in escrow subsidize payments |
| Refundable | Yes—unused funds returned if you sell/refi |
| Who pays | Often the seller (as concession) |
| Qualification | Must qualify at full note rate |
| Best for | Short-term owners or those expecting to refinance |
The Critical Difference
With a permanent buydown, if you refinance or sell early, you lose those points—they're gone forever. With a temporary buydown, unused escrow funds can be refunded or applied to your principal. This is why your expected timeline in the home is the single most important factor.
How to Use the Permanent Buydown Calculator
Our buydown calculator makes it easy to see exactly how much you'll save—and how long it takes to break even.
Enter Your Loan Details
Start with the basics: Loan Amount (e.g., $400,000), Base Interest Rate without any points (e.g., 6.5%), and Loan Term (usually 30 years).
Add Point Scenarios
Enter how many points you're considering (0.5, 1, 2, etc.) and the rate reduction per point. Ask your lender for this—typically 0.25% per point.
Review Your Results
The calculator shows: Monthly Payment Comparison (side-by-side), Total Interest Savings over the loan life, Break-Even Timeline (exactly how many months until points pay for themselves), and Total Cost of Points.
| Metric | Without Points | With 2 Points |
|---|---|---|
| Interest Rate | 6.5% | 6.0% |
| Upfront Cost | $0 | $8,000 |
| Monthly Payment (P&I) | $2,528 | $2,398 |
| Monthly Savings | — | $130 |
| Break-Even | — | 62 months (5.2 years) |
| 30-Year Interest Savings | — | $38,800 |
Run your own numbers to see exactly how much you could save with discount points.
When Does a Permanent Buydown Make Sense?
Not everyone should buy points. Here's a framework to help you decide.
The 7-Year Rule
As a general guideline: if you're confident you'll stay in the home for 7+ years, a permanent buydown often makes sense.
Why 7 years? Most break-even periods fall between 4-7 years. Staying beyond that means you're in "profit" territory—every month after break-even is pure savings.
| Your Situation | Best Choice | Why |
|---|---|---|
| Staying 7+ years, stable | Permanent buydown | Maximize lifetime savings |
| Moving in <5 years | Skip points | Won't reach break-even |
| Expecting to refinance | Temporary buydown | Points refunded if you refi |
| Seller concessions available | Temporary buydown | Use their money, not yours |
Real 2026 Examples: Running the Numbers
Let's look at three realistic scenarios using 2026 rate forecasts. Analysts expect rates to average 5.9%-6.4% this year.
| Metric | Details |
|---|---|
| Loan Amount | $350,000 |
| Base Rate → With 2 Points | 6.25% → 5.75% |
| Point Cost | $7,000 |
| Monthly Savings | $98 |
| Break-Even | 71 months (5.9 years) |
| 30-Year Savings | $28,280 |
| Metric | Details |
|---|---|
| Loan Amount | $550,000 |
| Base Rate → With 2 Points | 6.5% → 6.0% |
| Point Cost | $11,000 |
| Monthly Savings | $169 |
| Break-Even | 65 months (5.4 years) |
| 30-Year Savings | $49,840 |
| Metric | Details |
|---|---|
| Loan Amount | $800,000 |
| Base Rate → With 3 Points | 6.75% → 6.0% |
| Point Cost | $24,000 |
| Monthly Savings | $369 |
| Break-Even | 65 months (5.4 years) |
| 30-Year Savings | $108,840 |
Tax Benefits of Mortgage Points
Here's something most articles miss: discount points are tax-deductible.
Are Points Tax Deductible?
Yes—with conditions. For your primary residence purchase, you can deduct points if:
- The loan is secured by your main home
- Paying points is an established practice in your area
- Points are calculated as a percentage of the loan amount
- You use cash accounting (most people do)
Tax Example
You paid $8,000 in points on a home purchase. If you're in the 24% tax bracket, that's a $1,920 tax benefit—effectively reducing your net cost to $6,080. Always verify with a CPA or tax advisor. Reference: IRS Publication 936.
The Bottom Line
A permanent buydown can save you tens of thousands of dollars over the life of your loan—but only if you stay long enough to break even.
Key Takeaways
Know your timeline. If staying 7+ years, points often make sense. Under 5 years? Probably not.
Run the numbers. Don't guess—use our calculator to see your exact break-even point and total savings.
Consider alternatives. Temporary buydowns offer flexibility if you might refinance or move early.
Factor in taxes. Points are deductible, reducing your effective cost. Talk to your tax advisor.
Compare lenders. Point costs and rate reductions vary. Shop around and compare Loan Estimates.
Use our buydown calculator to see exactly how much you could save—and whether paying points makes sense for your situation.