A permanent rate buydown involves paying discount points at closing to reduce your interest rate for the entire life of the loan. One point equals 1% of the loan amount and typically reduces your rate by about 0.25%.
The cost is upfront, but you benefit from the lower rate for as long as you keep the loan. The break-even period is typically around 5-6 years.
Permanent buydowns are best for buyers who plan to stay in their home for more than 5-6 years and have extra cash for points at closing.
How It Works
You pay points at closing to buy down your rate. Each point costs 1% of the loan amount. On a 00K loan, 1 point costs ,000. Your rate drops by approximately 0.25% for each point paid.
Cost Structure
One point: rate down ~0.25%, cost = 1% of loan. Two points: rate down ~0.5%, cost = 2% of loan. The exact rate reduction varies by lender and market conditions.
Break-Even Analysis
If you pay ,000 for a point that saves you 0/month, your break-even is 60 months (5 years). If you stay in the home for 10 years, you save ,000 total, netting ,000 in savings after recouping the point cost.
Vs 2-1 Buydown
Permanent buydown: rate is lowered for entire loan term, higher upfront cost. 2-1 buydown: rate lowered temporarily (2 years), lower upfront cost. Permanent wins for long-term ownership.
When It Makes Sense
Best for: buyers staying 7+ years, buyers with extra cash at closing, those who want the lowest possible monthly payment, and refinancing when rates drop (buying down the new rate).
Seller-Funded Points
Sellers can contribute to discount points as part of seller concessions. This lets you get a permanently lower rate without paying for it yourself. The concessions are subject to loan type limits.