The cost to buy down an interest rate on a mortgage is typically measured in "points," where one point equals 1% of the loan amount. Each point generally reduces the interest rate by about 0.25 percentage points for the life of the loan. For example, on a $400,000 mortgage, one point would cost $4,000 and might lower the interest rate from 6.5% to 6.25%

. You can buy multiple points or even fractions of a point. Buying two points (2% of the loan amount) could reduce the rate by about 0.5%, but lenders often limit the number of points you can purchase, usually up to 4 points (1% reduction)

. The upfront cost is paid at closing as prepaid interest and is separate from your down payment. While buying points increases your initial costs, it lowers your monthly payments and the total interest paid over the loan term. The financial benefit depends on how long you plan to keep the mortgage; you need to stay in the home long enough to recoup the upfront cost through monthly savings

. For example, buying one point on a $400,000 loan for $4,000 might reduce monthly payments by about $67, and the break-even point would be around 30 months (2.5 years)

. If you plan to sell or refinance before then, buying points may not be cost- effective. In summary:

• Cost: About 1% of the mortgage amount per point (e.g., $4,000 per point on a $400,000 loan)
• Rate reduction: Approximately 0.25% per point
• Limits: Usually up to 4 points (1% total rate reduction)
• Payment: Paid upfront at closing as prepaid interest
• Benefit: Lower monthly payments and total interest if you keep the loan long enough to break even

This cost and benefit can vary by lender, loan type, and market conditions, so it's best to get specific quotes from your lender