Mortgage Discount Points vs. Rate Buydowns: What's the Difference?
Discount points and temporary rate buydowns both show up as "pay some money now, get a lower rate" — which is exactly why they get confused with each other. The difference in how long the discount lasts changes the math completely.
Discount points: permanent, one-time cost
A discount point typically costs 1% of your loan amount and permanently lowers your interest rate for the entire life of the loan — often by around 0.25%, though the exact amount varies by lender. You're essentially prepaying interest upfront in exchange for a lower rate for the full 15 or 30 years.
Temporary buydowns (2-1, 1-0): short-term, then it's gone
A 2-1 or 1-0 buydown lowers your rate only for the first one or two years, then the loan returns to its original permanent rate for the remainder of the term. The cost is typically paid by the seller or builder as a closing incentive, not by the buyer, though buyer-paid buydowns exist too.
The breakeven math is completely different
For discount points, the question is: how many months of lower payments does it take to recoup the upfront cost, given you'll keep that lower rate for the rest of the loan? If you sell or refinance before that breakeven point, points were a loss. For temporary buydowns, there's no "breakeven" in the same sense — it's usually free money to you if someone else is paying for it, since you're not the one funding the discount.
Which one actually saves you more, long-term?
If you're paying for the discount yourself and plan to hold the loan a long time, points generally win — the savings compound for the full loan term instead of disappearing after year one or two. If someone else (a seller or builder) is offering to pay for either option as a closing incentive, a temporary buydown is usually the more valuable gift, since it directly reduces your near-term cash flow when moving costs and new-homeowner expenses are highest.
The question to always ask
Whichever is offered, ask directly: is this cost built into a higher purchase price elsewhere, or is it a genuine reduction with no other tradeoff? Both points and buydowns are sometimes used to make a deal look better on paper while the underlying price absorbs the "discount" — comparing the same property's price with and without the offer is the only way to know for sure.
How we verify this: figures on this page are computed from standard published formulas and checked against our own calculators. Assumptions are stated inline. Found an error? Let us know — see our editorial approach.