For Veterans and active-duty military families, every dollar counts. This is especially true when you're transferring duty stations, budgeting for PCS moves, or trying to make the most of your VA loan benefit.
One strategy that often comes up in the homebuying conversation is the mortgage rate buydown. But does it really make sense to buy down your interest rate? How much does it cost? And when might it be a smart move or a waste of money?
Let’s walk through the ins and outs of mortgage buydowns so you can make the best financial decision for your current and future situation.
What Is a Mortgage Rate Buydown?
A mortgage rate buydown is a financing option that allows you to reduce your interest rate by paying extra money upfront. This can be done in two ways:
Permanent buydown: You pay “points” at closing to lock in a lower rate for the life of the loan
Temporary buydown: You or the seller pay for a reduced interest rate during the first few years of the loan, after which it adjusts to the full contract rate
Both options can lower your monthly payment, but they serve different purposes and affect your finances differently over time.
What Are Mortgage Points?
Mortgage points, also called discount points, are prepaid interest. You pay a lump sum at closing in exchange for a lower interest rate. The general rule of thumb is:
1 point equals 1 percent of the total loan amount
1 point typically reduces your rate by about 0.25 percent, although this can vary depending on the lender and market conditions
Example:
For a 400,000 dollar loan, one point would cost 4,000 dollars and might reduce your rate from 7.00 percent to 6.75 percent. That reduced rate would apply for the full loan term if you choose a permanent buydown.
How Much Does It Cost to Buy Down a Rate?
Here’s a general estimate of what to expect:
1 point equals 1 percent of the loan amount
1 point USUALLY lowers your rate by about 0.25 percent
To reduce your rate by 1 percent, you may need to buy 3 to 4 points
So to lower your rate by 1 percent on a $400,000 mortgage, you might pay $12,000 to $16,000 upfront.
This is where understanding your timeline becomes critical, especially for military families who might only be stationed in one location for 2 to 4 years.
Who Pays for the Buydown?
In today’s market, many sellers are willing to pay for a buydown as part of the deal. This is especially common in markets where sellers need a strong incentive to get buyers to the table.
If you're negotiating with a seller, ask if they’re willing to fund a buydown instead of lowering the purchase price. It could significantly reduce your monthly payment without increasing your out-of-pocket expenses.
Types of Buydowns: Permanent and Temporary
Permanent Buydown
You pay points at closing
The reduced interest rate lasts for the entire loan term
Best suited for those planning to stay in the home long-term
Temporary Buydown
Your interest rate is reduced for the first few years, then increases to the full rate
Often structured as:
1-0 buydown: 1 percent off for year one
2-1 buydown: 2 percent off year one, 1 percent off year two
3-2-1 buydown: 3 percent off year one, 2 percent off year two, 1 percent off year three
For active-duty military who know they’ll receive PCS orders in a few years, a temporary buydown might provide short-term savings without the long-term financial commitment of a permanent buydown.
When Does a Buydown Make Sense?
Consider a buydown if:
You know you’ll be in the home long enough to reach the break-even point
The seller or builder is offering to cover the cost
You need lower payments during the first few years
You expect your income to increase over time
You want to ease into homeownership with reduced upfront costs
A buydown may not be worth it if:
You plan to move within a couple of years, which is common with military PCS cycles
You're stretching your budget too thin
You would rather use the funds for other expenses, like moving costs or savings
Calculating the Break-Even Point
If you’re paying for the buydown yourself, this simple formula will help:
Cost of the buydown divided by the Monthly savings equals the Months to break even
Example:
You pay 12,000 dollars in points, and it saves you 300 dollars per month on your mortgage payment.
12,000 divided by 300 equals 40 months
You would need to stay in the home at least 3 years and 4 months to come out ahead. That might work well for someone retiring in place or settling down, but not for someone due for a relocation in 24 months.
Can VA Buyers Waive Escrow to Save Even More?
Yes. Some VA-approved lenders allow qualified Veterans to waive their escrow account. This means you would be responsible for paying your own property taxes and homeowners' insurance directly, rather than having them included in your monthly mortgage payment.
Waiving escrow may reduce your cash-to-close since you are not funding a prepaid cushion at closing. But it also puts the responsibility on you to save and pay those large bills on time.
For Veterans who are disciplined with their budgeting and want more financial flexibility, this option may be worth exploring.
Other Ways to Lower Your Mortgage Payment
If a buydown is not the right fit, consider other options such as:
Negotiating the purchase price
Asking for seller concessions toward closing costs
Refinancing later if interest rates fall
Choosing a longer loan term for a lower monthly payment, while keeping in mind the higher overall interest
Final Thoughts
A mortgage rate buydown can be a powerful way to make your home more affordable, either during the early years or across the life of the loan. For Veterans and active-duty service members, the key is aligning the strategy with your timeline, your plans, and your budget.
At Project Valor, we help you break it all down so you can make smart, confident decisions with your VA loan benefit. Whether you are buying your first home, transferring to a new duty station, or planning for retirement, we are here to support your next move.
Want to see if a buydown makes sense for you? Let’s run the numbers.
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💬 Message me any time. I would be honored to help you strategize.