One discount point on a $500,000 loan costs $5,000 and drops your rate by about 0.25%. That saves you roughly $80/month. Divide $5,000 by $80 and you get 62 months. Five years and change before you break even. Everything after that is money saved. Everything before it is money you could have used for something else.
That break-even calculation is the only thing that matters when deciding whether a buydown makes sense. The structure of the buydown, who pays for it, and how long you plan to keep the mortgage all feed into that one number.
Permanent vs. Temporary Buydowns
Permanent buydowns are discount points. You pay upfront at closing, your rate drops for the life of the loan. One point typically reduces the rate by 0.25%. The math is straightforward and the break-even usually lands between 48 and 65 months depending on the loan size and rate environment.
Temporary buydowns work differently. A 2-1 buydown means someone deposits cash into an escrow account at closing. That account subsidizes your payments for the first two years. Your note rate never actually changes. The escrow just covers part of the payment so you feel a lower rate temporarily.
The 2-1 is the structure most buyers and sellers are negotiating right now. On a $500,000 loan at 6.75%:
| Year | Rate You Pay | Monthly Payment | Monthly Savings |
|---|---|---|---|
| 1 | 4.75% | $2,608 | $635 |
| 2 | 5.75% | $2,918 | $325 |
| 3-30 | 6.75% | $3,243 | $0 |
Total cost of that 2-1 buydown: roughly $11,500. That money has to come from somewhere.
Who Should Pay for It
This is where most buyers get the analysis wrong. If you're the one writing the check for $11,500 after already covering your down payment and closing costs, you need to ask whether that money does more for you somewhere else. If putting an extra $11,500 toward your down payment gets you to 20%, you eliminate PMI entirely. On a $500K loan, PMI runs about $250/month. That's a guaranteed savings with no break-even period and no expiration date.