The quick read: A rate buydown means paying points upfront, each point 1% of the loan, for a lower note rate on the life of the loan. It is worth it only if you keep the loan past break-even, the cost divided by the monthly saving, and no refinance, sale or prepayment penalty cuts the hold short. In the illustrative example below, one point on $1,000,000 buys a quarter-point cut and pays back in about 59 months, so a borrower who refinances at month 36 loses money. On a DSCR purchase the better reason to buy down is coverage: the same point lifts the ratio from 0.99x to 1.01x on identical rent. Before you pay for a lower rate, get competing quotes on what each point buys.
How does a rate buydown work?
A permanent rate buydown works by paying the lender discount points at closing in exchange for a lower note rate, which lowers every principal-and-interest payment for as long as the loan stays outstanding. You are prepaying interest: the lender collects cash today instead of a higher rate later, so the trade only pays if the loan lasts.
The unit is the point. The Consumer Financial Protection Bureau defines it plainly: one point equals one percent of the loan amount, so one point on a $1,000,000 loan costs $10,000. What a point buys is not fixed. Per the CFPB, the amount your rate is reduced depends on the specific lender, the kind of loan and the overall mortgage market.
The CFPB's own example shows how small the trade can be: on a $180,000, 30-year loan, $675 in points buys 4.875% instead of 5.00%, which lowers the payment by $14 a month. That is about 48 months to earn back the $675, before counting anything else.
Permanent buydown: points paid at closing for a lower note rate for the life of the loan
Temporary buydown: a subsidy that lowers the payment for the first year or two, after which the payment rises to the note rate
Lender credit: the reverse trade, a higher rate in exchange for cash toward closing costs
For the mirror image of this negotiation on short-term debt, see our guide to negotiating points on a hard money loan. This page stays on the long-hold loans where a buydown can actually pay back.
How long until points pay back?
Points pay back when the cumulative monthly savings equal the upfront cost, so the simple break-even is the points paid divided by the monthly payment reduction, and in the illustrative example below one point on $1,000,000 takes about 58.7 months, just under five years, to earn back.
Illustrative example for this section, our arithmetic and not a quote: a $1,000,000 loan on a 30-year amortization at a par rate of 7.50%, with one point buying the rate down to 7.25%. The quarter-point cut per point is an assumption; your lender's sheet sets the real number.
Loan amount: $1,000,000
Amortization: 30 years, monthly payments
Principal and interest at 7.50%: $6,992.15 a month
Principal and interest at 7.25%: $6,821.76 a month
Monthly saving: $170.39
Cost of one point: $10,000
Simple break-even: $10,000 ÷ $170.39 = 58.7 months
The simple formula slightly understates the benefit, because the lower rate also pays principal down faster. By month 36 the 7.25% balance is about $1,400 lower than the 7.50% balance. Counting both the payment saving and the lower balance, the $10,000 is recovered around month 48 rather than month 59. Use the simple figure as the conservative test; if your hold clears it, the point pays.
Rate buydown on an illustrative $1,000,000, 30-year loan with $8,000 monthly rent and $1,100 monthly taxes and insurance (our arithmetic):
| Measure | Par at 7.50% | One point to 7.25% | Seller-paid point | Refinance at month 36 |
|---|---|---|---|---|
| Measure Points paid by the borrower | Par at 7.50% None | One point to 7.25% $10,000 | Seller-paid point None (seller pays $10,000) | Refinance at month 36 $10,000 |
| Measure Monthly principal and interest | Par at 7.50% $6,992.15 | One point to 7.25% $6,821.76 | Seller-paid point $6,821.76 | Refinance at month 36 $6,821.76 until payoff |
| Measure Monthly saving versus par | Par at 7.50% None | One point to 7.25% $170.39 | Seller-paid point $170.39 | Refinance at month 36 $170.39 for 36 months |
| Measure Simple break-even | Par at 7.50% Not applicable | One point to 7.25% 58.7 months | Seller-paid point Immediate for the borrower | Refinance at month 36 Not reached |
| Measure Value recovered by month 36 | Par at 7.50% Not applicable | One point to 7.25% About $7,540 | Seller-paid point Full saving, no cost | Refinance at month 36 About $7,540, about $2,460 short |
| Measure DSCR on $8,000 rent | Par at 7.50% 0.99x | One point to 7.25% 1.01x | Seller-paid point 1.01x | Refinance at month 36 1.01x while held |
The CFPB's advice fits commercial borrowers as well as homeowners: compare total costs over the shortest, longest and most likely time you expect to keep the loan. If the shortest plausible hold is under the break-even, the point is a bet on your own exit timing.
When does a buydown lose money?
A buydown loses money whenever the loan ends before the savings catch up with the points, whether that ending is a refinance into a lower rate, a sale of the property, or a prepayment penalty that makes an early payoff expensive enough to change your plans. The points are spent the day you close.
Illustrative example, continuing the same $1,000,000 loan: a borrower who pays one point and refinances at month 36 has saved $6,134 in payments (36 × $170.39) and carries a balance about $1,409 lower than at par. That recovers about $7,540 of the $10,000, leaving about $2,460 unrecovered. A sale at month 36 produces the same shortfall.
Three checks before you pay a point on a commercial or DSCR loan:
- Your realistic hold. A value-add business plan with a planned refinance or sale inside four years rarely clears a five-year break-even.
- The prepayment terms on your own note. Prepayment structures differ by lender and program, so model the schedule written into your term sheet, not a typical step-down. A penalty can lock you in long enough to reach break-even, but it also costs you the option to refinance if rates fall.
- The rate path. If you expect to refinance when rates drop, the points and a refinance compete for the same savings. Paying for both is paying twice.
On a commercial loan with a short term or a balloon, the maturity date caps the hold. A five-year term with a 58.7-month break-even leaves almost nothing on the table even if you never prepay.
Can a buydown fix a DSCR shortfall?
A buydown can fix a narrow DSCR shortfall, because a DSCR lender divides the property's rent by the full monthly payment, and a lower note rate shrinks that payment on exactly the same income. It works only at the margin: one point moves the illustrative ratio about two hundredths, not enough to rescue a weak deal.
Illustrative example for this section: $8,000 of monthly rent against principal and interest plus $1,100 of monthly taxes and insurance.
DSCR at 7.50%: $8,000 ÷ ($6,992.15 + $1,100) = $8,000 ÷ $8,092.15 = 0.99x
DSCR at 7.25%: $8,000 ÷ ($6,821.76 + $1,100) = $8,000 ÷ $7,921.76 = 1.01x
If the lender's minimum on that program is 1.00x, the point is the difference between qualifying and not, and the break-even arithmetic becomes secondary. Minimums, and which expenses each lender counts in the denominator, are set program by program, so ask for both in writing. A lender sizing to a 1.20x floor would need far more than one point to close this gap; lowering the loan amount or finding a program with a longer amortization or interest-only period may cost less.
Run your own rent, taxes, insurance and loan amount through the DSCR calculator at the par rate and at the bought-down rate to see how far each point moves your ratio. Our DSCR loan page covers how these loans are sized.
Can the seller pay for it?
A seller can often pay for your buydown as a concession at closing, which gives you the lower rate and the higher coverage without spending your own cash, but the lender may cap how much an interested party may contribute, and the cap that applies depends on who is making the loan.
For loans sold to Fannie Mae, the Selling Guide sets the limit precisely: financing concessions on an investment property are capped at 2% at all CLTV ratios, calculated on the lower of the sales price or appraised value, not the loan amount. A buydown funded by an interested party counts toward that cap, and any excess is treated as a sales concession and deducted from the sales price.
Those rules govern Fannie Mae loans only. A private DSCR program or a commercial balance-sheet lender sets its own concession limit, so ask the lender for its written guideline before you negotiate the contract. A seller credit that a lender later reclassifies can shrink the price your loan is sized on.
Illustrative example: on the $1,000,000 loan, a seller who agrees to pay the $10,000 point gives you the 7.25% payment and the 1.01x ratio with no points from you. The negotiation is often easier framed as a buydown than as a price cut, because the seller's headline price holds.
How do you get lenders competing on the rate and the points?
You get lenders competing on the rate and the points by putting the same loan request in front of several lenders at once and asking each to price par and a bought-down rate, because what a point buys is set lender by lender and is the number a single quote never lets you test.
There are two ways to run that comparison, and the brokerage route comes first because it puts several lenders against one file.
- Brokerage route (YieldStack). YieldStack is an AI-native commercial mortgage brokerage that arranges financing for commercial real estate investors. Its software compares your deal against 20,000+ loan programs and typically surfaces 5–8 matches; its brokers then structure the request, ask each lender for par and bought-down pricing, negotiate the points and prepayment terms on your side, and carry the deal toward closing. It is a 5-minute submit, with a median first offer in under an hour, from an institutional lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing.
- Direct route. Ask one lender for its rate sheet. You get that lender's price per point and prepayment schedule, with no second quote to test them against.
Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
Submit your deal and compare what each lender charges per point
The bottom line
A rate buydown is prepaid interest. In the illustrative example, one point on $1,000,000 cuts the payment by $170.39 and pays back in about 58.7 months, so it suits a long hold and loses money on a refinance at month 36. On a DSCR purchase, its stronger use is lifting coverage over a lender's minimum. Price par and bought-down rates from several lenders before you decide.