Rate Buydowns: Temporary 2-1 vs Permanent Points — the Break-Even You Should Demand
Builders and sellers are paying to 'buy down' buyers' rates, and lenders sell points at closing. Here is how temporary and permanent buydowns really compare, and the break-even to check before you pay for either.
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📐 Figures verified Sep 28, 2026 against the CFPB's Owning a Home and Loan Estimate guides, Fannie Mae's Selling Guide on temporary buydowns, IRS Topic 504 on home mortgage points and Freddie Mac's rate survey (September 2026 average about 6.86%). How much a point lowers your rate varies; the example assumes 0.25 percentage point per point. This is general information, not financial advice. How we check numbers →
Permanent points lower your rate for the life of the loan and pay off only if you keep the loan past the break-even, about 5.0 years in our example. A temporary 2-1 buydown cuts payments for two years, then resets. If a seller is paying, a 2-1 buydown suits buyers who expect to refinance soon; permanent points suit those who'll stay put.
Numbers That Matter
| Figure | Amount | Source | Verified |
|---|---|---|---|
| Discount points | Each point costs 1% of the loan; the rate cut per point varies by lender | CFPB, Loan Estimate guide | Sep 28, 2026 |
| Temporary buydowns | Funds held to lower payments for a set period; rules for qualifying and funding | Fannie Mae Selling Guide | Sep 28, 2026 |
| Tax treatment of points | May be deductible as mortgage interest if requirements are met | IRS Topic 504 | Sep 28, 2026 |
| 30-year fixed rate, September 2026 average | About 6.86% | Freddie Mac PMMS | Sep 28, 2026 |
| Comparing offers | Shop Loan Estimates from several lenders | CFPB, Owning a Home | Sep 28, 2026 |
Permanent Buydowns: Discount Points
You pay points at closing, each costing 1% of the loan, to lower the rate for the whole loan. The payoff is simple: divide the cost by the monthly savings to get your break-even in months. Keep the loan longer and points pay; sell or refinance sooner and you've prepaid interest you'll never use.
Temporary Buydowns: The 2-1
A 2-1 buydown lowers the payment as if the rate were 2 points lower in year one and 1 point lower in year two, then the full rate applies. The cost, the sum of those payment differences, is set aside at closing, often paid by a seller or builder. Lenders generally qualify you at the full rate, so the buydown helps cash flow, not approval.
Spending a Seller Concession: Three Ways
| Use of a $9,263 concession | What it does |
|---|---|
| 2-1 temporary buydown | Saves $511 a month in year one and $261 in year two; nothing after |
| Permanent points (about 2.3 points) | Saves about $153 a month for as long as you keep the loan |
| Price reduction | Saves about $61 a month and lowers the amount you finance |
Worked Example: A $400,000 Loan
- No buydown: 6.86% for 30 years is $2,624 a month.
- Two points ($8,000): the rate drops to 6.36% and the payment to $2,492, saving $132 a month; break-even is about 61 months.
- 2-1 buydown: $2,113 in year one and $2,362 in year two, then $2,624. Its cost, about $9,263, is what the seller would fund.
Principal and interest only; assumes each point cuts the rate by 0.25 percentage point. Get real quotes.
Decision Rules
If this, then that
- If you expect to keep the loan past the break-even → permanent points can pay.
- If you expect rates to fall and plan to refinance → a seller-paid 2-1 buydown uses the money while you hold the loan.
- If you're paying for a temporary buydown yourself → you're mostly prepaying your own interest; skip it.
- If the seller offers a concession → compare buydown, points and price cut in dollars.
- Always → ask what happens to unused buydown funds if you refinance or sell early.
Mistakes to avoid
- Buying points on a loan you'll refinance in two years.
- Budgeting for the year-one payment instead of the full payment.
- Comparing lenders' rates without comparing points and credits.
- Assuming a buydown helps you qualify for a bigger loan.
- Forgetting points can be tax-deductible if you itemize.
Related: mortgage rates explained covers pricing; closing costs explained covers points on the Loan Estimate; assumable mortgages covers another way to a lower rate; and how to refinance covers the exit.