What a mortgage rate buydown actually is
When you take out a mortgage, the lender quotes you a rate. That rate isn't fixed by the universe. It's negotiable, and one of the levers you have is buying it down using cash at closing.
The mechanism is called discount points. One point equals 1 percent of your loan amount. So on a $400,000 loan, one point is $4,000. You pay that $4,000 at closing, and in exchange, the lender drops your rate.
How much your rate drops per point depends on the lender, the loan type, and the broader rate environment, but the general rule of thumb is:
1 point = roughly 0.25 percent rate reduction
2 points = roughly 0.50 percent
3 points = roughly 0.75 to 1.00 percent
These aren't fixed ratios. Some lenders will give you a higher rate per point. Some will give you less. When you're buying a lot of points at once, lenders usually have more room to give a better per-point reduction.
Where the commission rebate comes in
Here's the part most buyers miss. In Florida (and Texas and most other states), real estate agents can legally rebate part of their commission to the buyer at closing. Homa is built around this. Same with a handful of other flat-fee brokerages.
The math on a typical $528,000 Florida home goes like this:
Seller offers a 2.5 percent buyer's-agent commission: $13,200
Homa charges a flat 1 percent fee: $5,280
Difference rebated to the buyer at closing: $7,920
That $7,920 doesn't have to be cash in your pocket. It can be wired straight to the lender as a credit toward your closing costs, including discount points. So instead of $7,920 in your bank account, you get a permanently lower mortgage rate that saves you money every month for 30 years.
What a mortgage rate buydown actually is
When you take out a mortgage, the lender quotes you a rate. That rate isn't fixed by the universe. It's negotiable, and one of the levers you have is buying it down using cash at closing.
The mechanism is called discount points. One point equals 1 percent of your loan amount. So on a $400,000 loan, one point is $4,000. You pay that $4,000 at closing, and in exchange, the lender drops your rate.
How much your rate drops per point depends on the lender, the loan type, and the broader rate environment, but the general rule of thumb is:
1 point = roughly 0.25 percent rate reduction
2 points = roughly 0.50 percent
3 points = roughly 0.75 to 1.00 percent
These aren't fixed ratios. Some lenders will give you a higher rate per point. Some will give you less. When you're buying a lot of points at once, lenders usually have more room to give a better per-point reduction.
Where the commission rebate comes in
Here's the part most buyers miss. In Florida (and Texas and most other states), real estate agents can legally rebate part of their commission to the buyer at closing. Homa is built around this. Same with a handful of other flat-fee brokerages.
The math on a typical $528,000 Florida home goes like this:
Seller offers a 2.5 percent buyer's-agent commission: $13,200
Homa charges a flat 1 percent fee: $5,280
Difference rebated to the buyer at closing: $7,920
That $7,920 doesn't have to be cash in your pocket. It can be wired straight to the lender as a credit toward your closing costs, including discount points. So instead of $7,920 in your bank account, you get a permanently lower mortgage rate that saves you money every month for 30 years.
The mortgage payment is the line item that punches you in the face every month for 30 years. Get the rate wrong, and you're paying for it through a presidential election, two dog lifespans, and your kid's entire childhood.
So when there's a way to lower that rate using money you'd otherwise hand to your real estate agent, it's worth understanding the mechanics. Most buyers don't even know it's an option.
Here's the play. In a post-NAR settlement world, more buyers are working with flat-fee or rebate brokerages that return part of the seller-paid commission. Instead of taking that money as cash at closing, you can apply it directly to a permanent reduction in your mortgage rate. The savings compound over the life of the loan, and on a typical Florida purchase the lifetime impact is somewhere north of $40,000.
This is the article that walks through exactly how it works.
The mortgage payment is the line item that punches you in the face every month for 30 years. Get the rate wrong, and you're paying for it through a presidential election, two dog lifespans, and your kid's entire childhood.
So when there's a way to lower that rate using money you'd otherwise hand to your real estate agent, it's worth understanding the mechanics. Most buyers don't even know it's an option.
Here's the play. In a post-NAR settlement world, more buyers are working with flat-fee or rebate brokerages that return part of the seller-paid commission. Instead of taking that money as cash at closing, you can apply it directly to a permanent reduction in your mortgage rate. The savings compound over the life of the loan, and on a typical Florida purchase the lifetime impact is somewhere north of $40,000.
This is the article that walks through exactly how it works.
A real dollar example
Let's run this on a $400,000 home with 10 percent down ($40,000) and a $360,000 mortgage. April 2026 rates are floating around 6.6 percent for a 30-year fixed.
Without the buydown
Loan amount: $360,000
Rate: 6.6 percent
Monthly principal and interest: $2,300
Total interest paid over 30 years: $467,000
With $7,500 toward discount points (about 2 points)
Loan amount: $360,000
Rate: 6.1 percent
Monthly principal and interest: $2,180
Total interest paid over 30 years: $425,000
You save $120 per month. Over the full loan, that's $42,000 in interest you don't pay, in exchange for $7,500 you didn't have anyway. The break-even is about 5 years, meaning you come out ahead the moment you've owned the house longer than that.
If you keep the loan to maturity, the return on that $7,500 is roughly 5.6x. Try getting that in the stock market.
Break-even math
The break-even is the part most articles skip, so here's how to think about it.
Take the cost of the buydown and divide it by your monthly savings. That's your break-even in months.
$7,500 buydown / $120 monthly savings = 62 months, or about 5 years
$4,000 buydown / $70 monthly savings = 57 months
$10,000 buydown / $170 monthly savings = 59 months
If you're going to live in the home longer than the break-even, the buydown wins. If you're going to sell or refinance before then, it doesn't.
For most Florida buyers, the median time in a home is around 13 years, so break-evens in the 4 to 6 year range are an easy yes. The exception is buyers who know they're moving in 2 or 3 years for work or family reasons. In that case, you'd usually be better off taking the rebate as cash.
Find your home.
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Find your home.
Get up to 2% back.
Search homes, schedule tours, make smarter offers, and get thousands back at closing with Homa
Find your home.
Get up to 2% back.
Search homes, schedule tours, make smarter offers, and get thousands back at closing with Homa
Permanent vs. temporary buydowns
There are two flavors of rate buydown. Most people only know the first one.
Permanent buydown is what we've been talking about. You pay for discount points, your rate drops, and it stays dropped for the entire life of the loan.
Temporary buydown is more common right now in builder financing and some seller-paid concession deals. The two main versions are 2-1 and 3-2-1.
A 2-1 buydown means your rate is 2 percent lower in year 1, 1 percent lower in year 2, and back to the full rate from year 3 onward. A 3-2-1 stretches that out to three years.
The catch with temporary buydowns is they only help you for the first 2 or 3 years. After that, you're paying the full rate. They make sense if you expect rates to drop and plan to refinance during the buydown window. They don't make sense as a long-term strategy.
If you're using a commission rebate to fund a buydown, almost always go permanent. The economics are cleaner and the savings stick.
FAQ
Is the commission rebate taxable? The IRS has consistently treated agent commission rebates to buyers as a reduction in the home's purchase price, not as income. That means it's not taxable. (Talk to a CPA for your specific situation, but the IRS guidance has been consistent on this since 2007.)
Will my lender allow this? Most lenders allow agent rebates to be applied to closing costs, including discount points. A few don't, particularly some FHA lenders. Ask before you commit. If your lender won't accept the rebate as a credit, find one that will.
Are mortgage points tax deductible? For a primary residence, yes, mortgage points are generally deductible in the year you pay them, as long as you itemize. Talk to a tax pro, but this is one of the cleaner deductions in the tax code.
What if the seller is also offering a credit? You can stack them. Seller credits, agent rebates, and lender credits can all flow into closing costs. The cap is total closing costs, so as long as you have enough closing-cost line items to absorb it, you can layer multiple sources.
Should I use the rebate for a buydown or a bigger down payment? It depends on your loan-to-value ratio. If you're already over 20 percent down, the buydown almost always wins. If you're at 5 to 10 percent down and adding to the down payment would push you past 20 percent and eliminate PMI, the down payment usually wins. Run both numbers.
What about a 2-1 buydown instead? For a permanent rate reduction, use the rebate for discount points. For a temporary rate cut, you can use it for a 2-1 buydown, but only if you're confident you'll refinance.
Permanent vs. temporary buydowns
There are two flavors of rate buydown. Most people only know the first one.
Permanent buydown is what we've been talking about. You pay for discount points, your rate drops, and it stays dropped for the entire life of the loan.
Temporary buydown is more common right now in builder financing and some seller-paid concession deals. The two main versions are 2-1 and 3-2-1.
A 2-1 buydown means your rate is 2 percent lower in year 1, 1 percent lower in year 2, and back to the full rate from year 3 onward. A 3-2-1 stretches that out to three years.
The catch with temporary buydowns is they only help you for the first 2 or 3 years. After that, you're paying the full rate. They make sense if you expect rates to drop and plan to refinance during the buydown window. They don't make sense as a long-term strategy.
If you're using a commission rebate to fund a buydown, almost always go permanent. The economics are cleaner and the savings stick.
FAQ
Is the commission rebate taxable? The IRS has consistently treated agent commission rebates to buyers as a reduction in the home's purchase price, not as income. That means it's not taxable. (Talk to a CPA for your specific situation, but the IRS guidance has been consistent on this since 2007.)
Will my lender allow this? Most lenders allow agent rebates to be applied to closing costs, including discount points. A few don't, particularly some FHA lenders. Ask before you commit. If your lender won't accept the rebate as a credit, find one that will.
Are mortgage points tax deductible? For a primary residence, yes, mortgage points are generally deductible in the year you pay them, as long as you itemize. Talk to a tax pro, but this is one of the cleaner deductions in the tax code.
What if the seller is also offering a credit? You can stack them. Seller credits, agent rebates, and lender credits can all flow into closing costs. The cap is total closing costs, so as long as you have enough closing-cost line items to absorb it, you can layer multiple sources.
Should I use the rebate for a buydown or a bigger down payment? It depends on your loan-to-value ratio. If you're already over 20 percent down, the buydown almost always wins. If you're at 5 to 10 percent down and adding to the down payment would push you past 20 percent and eliminate PMI, the down payment usually wins. Run both numbers.
What about a 2-1 buydown instead? For a permanent rate reduction, use the rebate for discount points. For a temporary rate cut, you can use it for a 2-1 buydown, but only if you're confident you'll refinance.
The bottom line
A commission rebate is real money. The default for most buyers is to take it as cash at closing, but in the current rate environment, that's almost always the wrong choice. Applying that same money to a permanent rate buydown saves you 4 to 6 times the original amount over the life of the loan.
If you're buying in Florida and using a rebate brokerage like Homa, ask your lender to accept the rebate as a credit toward discount points. Run the break-even. If you're staying in the house longer than that, the buydown is the move.
The mortgage payment is the longest-running line in your budget. Spending a one-time $7,500 to lower it by $120 a month for 360 months is one of the best deals in personal finance. And the money was sitting there anyway, attached to the seller's commission offer. The only question is whether you let it disappear into an agent's pocket or use it to make your house cheaper to own.
The bottom line
A commission rebate is real money. The default for most buyers is to take it as cash at closing, but in the current rate environment, that's almost always the wrong choice. Applying that same money to a permanent rate buydown saves you 4 to 6 times the original amount over the life of the loan.
If you're buying in Florida and using a rebate brokerage like Homa, ask your lender to accept the rebate as a credit toward discount points. Run the break-even. If you're staying in the house longer than that, the buydown is the move.
The mortgage payment is the longest-running line in your budget. Spending a one-time $7,500 to lower it by $120 a month for 360 months is one of the best deals in personal finance. And the money was sitting there anyway, attached to the seller's commission offer. The only question is whether you let it disappear into an agent's pocket or use it to make your house cheaper to own.
