Compare rates from your lender's rate sheet — see if buying down is worth it.
Cost per 0.125% Rate Drop
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6.625% buys the rate down most cheaply at $1,140 per 0.125%. Past that, each further eighth costs more than the one before it.
Buying Points Saves You Money
$1,505
over 7 years, after $1,140 in points
Par · 6.75%
$2,465
Selected · 6.625%
$2,433
Monthly savings
$31
Break-even
3.0y
Net Savings by Hold Period
Click a period to select
Negative = you came out behind par (sold or refinanced on the wrong side of the crossover).
Cumulative Savings vs Par Rate
Below the dotted line, you haven’t recovered the points cost yet.
Points only pay off if you keep the loan past the breakeven.
Altgage Inc. NMLS #2447252 | 100 Cambridge St, Floor 14, Boston, MA 02114A mortgage point costs 1% of your loan amount, paid at closing, and buys your interest rate down. On a $359,100 loan, one point is $3,591.
Points are sold in eighths — 0.125% of rate at a time — and each eighth has its own price, set by the lender’s rate sheet that morning. The prices are not round, they are not stable, and they are not proportional. That last part is where most of the money is won or lost, and it’s the part a printed rate table hides.
The mirror image is a lender credit: instead of paying to go below par, you accept a rate above it and the lender pays part of your closing costs. Same mechanism, opposite direction. Sitting between the two is the par rate — the rate where neither of you pays the other anything. Par is the honest center of the pricing sheet, and it is almost never the rate you get quoted.
One question decides whether buying down is worth doing: how long until the smaller payment pays back what you handed over? If you’ll still own the loan well past that date, points win. If you might not, you’ve spent money you don’t get back. Everything below is a way of pressure-testing that one date.
Upfront cost ÷ monthly savings = months to break even. Pay $2,660 to save $63 a month and you're square at 42 months — three and a half years. Before that date you're behind; after it, every payment is profit. The Cumulative Savings vs Par Rate chart draws exactly this, and the point where the line crosses zero is that date.
Rate sheets aren't linear. The first eighth you buy is cheap; the fourth is not. That's why the Cost per 0.125% chart matters more than the raw prices — it shows the marginal price of each step down, and it usually climbs. The lowest bar is where you stop getting a deal, and buying past it means paying a premium for rate you may never recoup.
The median mortgage doesn't reach its tenth birthday — people move, and they refinance when rates drop. That's why this calculator won't recommend a buy-down that takes more than five years to pay back, however good the price looks: a break-even you have to stay put for is a bet on your own plans not changing. And if you think rates are heading down, points are a poor bet regardless — you'd refinance straight out of them and the money stays spent.
Short on cash at closing? Take a rate above par and the lender covers some of your closing costs. Hit + Add credit to price one. Nobody hands you the money — it offsets what you owe — and the break-even inverts: you start ahead and the bigger payment slowly eats the difference. So a credit's crossover is a deadline to sell or refinance by, not a milestone to reach. Past it, the credit has cost you.
Compare against the alternatives before you commit. A bigger down payment can drop you below 80% and kill PMI entirely, which often beats a rate buy-down outright. Paying off a credit card at 22% beats it every time. And cash kept as reserves has a value no spreadsheet shows — right up until the roof goes.
Most quotes show one or two options. Ask for the full pricing grid — every rate and its cost or credit — then type the rows in above. Comparing lenders means comparing at the same rate: a lower rate with heavier points can be the more expensive loan. That's what the par rate is for, and it's what Loan Estimate section A is for at offer time.
Here’s what a loan officer actually sees. This is a real pricing screen, one row per eighth:
| Rate | Monthly payment | Premium / Discount | What it costs you |
|---|---|---|---|
| 6.375% | $2,281.39 | 99.202 | $2,860.83 |
| 6.500% | $2,310.78 | 99.665 | $1,200.98 |
| 6.625% | $2,340.33 | 100.081 | −$290.39 (credit) |
| 6.750% | — | — | −$1,925.15 (credit) |
Everything you need is in there. Almost nobody can read it in real time.
The Premium/Discount column is priced per $100 of loan. 100.000 is par. 99.665 means the loan prices at 99.665% of face — you’re short 0.335 points and you make it up in cash. 100.081 means the lender is paying you 0.081 points. Par sits somewhere between 6.500% and 6.625%, and the sheet never tells you where.
Now do the arithmetic the sheet doesn’t do:
Same eighth of rate. Eleven percent more money. And that’s one step. Go four steps down and the gap compounds.
This is what the Cost per 0.125% chart above draws. Each bar is the cost of one eighth, measured from par — which is the number that actually tells you whether you’re still getting a deal or paying a premium for rate you’ll never recover. Read the chart and the answer is immediate. Read the table and you’re doing mental arithmetic across four columns while a loan officer waits on the phone. Most of them can’t do it either, which is not a criticism — it’s a spreadsheet job being asked of a conversation.
If par is the honest center of the pricing — the rate at which nobody pays anybody — why does the rate you’re quoted almost never sit near it? Because somebody has to be paid, and there are two ways to do it.
Borrower-paid. You pay the originator directly, as a line item on your Loan Estimate. It’s visible, it’s a number, and you can compare it against another quote.
Lender-paid. The originator is compensated by the lender as a percentage of the loan amount — commonly 1% to 2.5%. You write no check. The compensation is disclosed, it’s entirely legal, and under federal loan-originator compensation rules it can’t vary based on your loan’s terms, which is a genuine consumer protection.
But the money still has to come from the pricing. A 2% lender-paid compensation load means the loan must be priced 2% richer to the lender — and that 2% comes out of the same credit that would otherwise have gone to you. On a $359,100 loan, 2% is $7,182. From the sheet above, an eighth near par runs about $1,491. That compensation load is worth roughly five eighths of rate — about 0.6%. Not 0.6% of fees. 0.6% of rate, on a 30-year loan.
Which is the actual mechanism: the quoted rate isn’t inflated by anyone acting in bad faith. It’s inflated because par moved. The rate where the credit hits zero sits higher than it otherwise would, and the borrower sees a perfectly ordinary-looking quote with no way to tell the difference between a well-priced loan and a well-compensated one.
A flat fee breaks the link. When compensation is a fixed dollar amount rather than a percentage of the loan, it stops scaling with your loan size and it stops eating the pricing. Par lands where the market puts it, the credit at par goes to you, and — critically — you can see the fee as a number and compare it.
This is not an argument that lender-paid compensation is wrong. For a cash-tight buyer it’s often the better structure, and the alternative is finding several thousand dollars at closing. It’s an argument that you can’t evaluate a rate quote without knowing where par is, and that almost no quote tells you. That’s what the chart above exists to show. If the credit at par looks smaller than it should for your loan size, that’s the question to ask.
These get conflated constantly and they are different products.
Discount points buy a permanent rate reduction. You pay once, the rate is lower for the life of the loan, and the break-even runs for years.
A temporary buydown — the 2-1 and 3-2-1 structures common when rates are high and builders are motivated — reduces your rate for the first year or two only, then it steps back to the note rate. It’s usually funded by a seller or builder concession rather than by the buyer, and it’s escrowed upfront.
A temporary buydown is a cash-flow bridge, typically taken by someone betting they’ll refinance before it expires. Discount points are a long-hold play. Confusing them produces expensive mistakes in both directions.
Points paid on a purchase are generally deductible in the year you pay them, provided they’re a genuine charge for reducing the rate and reflect normal practice in your area. Points on a refinance are different — they must be spread across the loan’s term, so a $4,000 payment on a 30-year refi deducts at roughly $133 a year.
One thing people miss: if you refinance again before that term ends, the remaining unamortized points from the earlier refinance can generally be deducted in full in the year the loan is retired.
As with all of this, it only reaches you if you itemize — confirm your own position with a tax preparer.
Mortgage points are an upfront payment that permanently lowers your interest rate. One point costs 1% of the loan amount, and rate is sold in eighths — 0.125% at a time — each priced separately on the lender’s daily rate sheet.
One point is 1% of the loan amount, so $3,591 on a $359,100 loan. What that buys varies daily: on a typical sheet a single eighth of rate runs somewhere around $1,500 on a loan that size, and the price rises with each further eighth you buy.
You pay the lender cash at closing and they reduce your note rate. The trade is measured by break-even: upfront cost divided by monthly savings gives the number of months until you’re square. Own the loan past that date and the buy-down pays; sell or refinance before it and it doesn’t.
It depends entirely on how long you’ll keep the loan. If your break-even is 42 months and you’re confident you’ll still hold the mortgage in four years, points are a reasonable trade. Since the median mortgage doesn’t reach its tenth birthday, break-evens beyond about five years are a bet on your own plans not changing.
Lenders typically allow up to three or four points, and some cap it lower. The more useful limit is economic rather than administrative: each additional eighth costs more than the last, so there’s a point on every rate sheet where you stop getting a deal and start paying a premium.
A lender credit is the reverse of buying points — you accept a rate above par and the lender pays part of your closing costs. It’s useful when you’re short on cash at closing, but the break-even inverts: you start ahead and the higher payment gradually erodes the benefit, so the crossover is a deadline to sell or refinance by rather than a milestone to reach.
The par rate is the rate at which neither you nor the lender pays the other anything — no points, no credit. It’s the honest center of the pricing sheet and the reference point for judging every quote, which is why it’s marked on the chart above and why it’s worth asking any lender where theirs sits.
Points on a purchase are generally deductible in the year paid; points on a refinance must be spread across the loan term. If you refinance again before that term ends, the remaining unamortized points from the earlier loan can usually be deducted in full that year. It only helps if you itemize.
Yes — that’s the entire mechanism. A lower rate produces a lower principal and interest payment for the life of the loan. It doesn’t affect taxes, insurance or mortgage insurance, so the reduction applies only to the P&I portion of what you pay each month.