The formula is straightforward: monthly savings multiplied by months until breakeven equals total savings. If your total savings before you sell or refinance exceeds the upfront cost, the buydown is worth it. Use online calculators or ask your lender to run the scenarios for you.
The Calculation Method
Step 1: Get the rate with and without points from your lender. Step 2: Calculate the monthly payment for each. Step 3: Find the monthly savings. Step 4: Divide the point cost by the monthly savings. Step 5: Convert to years.
Formula
Point cost / Monthly payment savings = Months to breakeven / 12 = Years to breakeven
If years to breakeven is less than your planned ownership, the buydown saves money.
Worked Example
Loan amount: $350,000. Rate without points: 6.5% ($2,213/month). With 1 point ($3,500): 6.25% ($2,154/month). Monthly savings: $59. Breakeven: $3,500 / $59 = 59 months (4.9 years). If you stay 5+ years, points win.
Breakeven Chart
- $350K loan, 1 point ($3,500):$59/month savings, 59 mo breakeven
- $400K loan, 1 point ($4,000):$65/month savings, 62 mo breakeven
- $300K loan, 0.5 point ($1,500):$27/month savings, 56 mo breakeven
- $500K loan, 2 points ($10,000):$165/month savings, 61 mo breakeven
Comparison to Investing the Money
What if you invested that $3,500 instead of buying points? At 7% annual return, $3,500 grows to $4,924 in 5 years (net gain $1,424). But buying points saves $59/month or $3,540 over 5 years (net gain $40). However, the point savings are guaranteed; investment returns are not.
When the Buydown Is Worth It
- Your breakeven is less than your planned ownership period
- You have extra cash that won't strain your budget
- You want the guarantee of a lower payment vs market uncertainty
- Interest rates are high and likely to stay steady or rise
