Mortgage Points (Buydown)
Discount points (a rate buydown) are an optional upfront fee paid at mortgage closing to permanently lower the loan's interest rate. The rough market convention is 1 point = 1% of the loan amount, paid upfront, in exchange for about a 0.25% rate reduction. Whether points are worth it depends on the break-even: upfront cost divided by annual payment savings gives the number of years you must keep the loan to come out ahead. A long hold favors buying points; selling or refinancing sooner favors keeping the cash.
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Related terms
Adjusted Cost Basis · Annuity · Capital Gains Distribution · Capitalized Interest · Cost Basis · Dividend Discount Model (DDM)
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