Discount Points vs. Temporary Buydown vs. ARM: Three Ways to Lower Your Payment
Points lower your rate for the life of the loan, a temporary buydown lowers it for the first year or two, and an ARM gives you a lower fixed rate for a set period before it can adjust. Each one trades something for the lower payment, so the right choice depends on how long you’ll keep the loan.
How do discount points work?
One point costs 1% of the loan amount and lowers your rate by a set amount, which varies by lender and market. You pay it up front, and the savings last as long as you keep the loan.
Illustration: on a $700,000 loan at 7%, the payment is about $4,657. Suppose one point ($7,000) lowers the rate to 6.75%. The payment falls to about $4,540, a saving of roughly $117 a month. You’d break even in about 60 months. If you keep the loan longer, points win. If you sell or refinance sooner, you lose.
How does a temporary buydown work?
It lowers your rate by a set amount in the early years, for example 2% in year one and 1% in year two, and then the rate returns to the full note rate. The cost is paid up front, often by a seller or builder.
It helps your cash flow in the early years. It doesn’t lower your long-term rate, and you generally qualify at the full note rate.
How does an ARM work?
An adjustable-rate mortgage has a fixed rate for an initial period, such as five years, then adjusts. The initial rate is usually lower than a 30-year fixed.
Illustration: a 5-year ARM at 6.25% on $700,000 has a payment of about $4,310, roughly $347 a month less than the 7% fixed loan, or about $20,800 over five years. But if the rate adjusts up 2% after five years, the payment could rise to about $5,150 a month. Caps limit how much it can move, but it can still rise.
When does each one fit?
• Points: you’ll keep the loan a long time and don’t plan to refinance.
• Temporary buydown: you want relief now and expect to refinance or your income to grow. Best when someone else pays for it.
• ARM: you’re likely to sell or refinance before the fixed period ends, and you can handle a higher payment if you don’t.
What about doing nothing and refinancing later?
That’s also a strategy. Take the fixed rate, keep your payment manageable, and refinance if rates drop. We do Strike-Rate monitoring so you know when it makes sense.
The wrong question is “which is cheapest?” The right one is “how long will I keep this loan?”
Want the comparison on your numbers? Talk to us
These are illustrations using hypothetical rates and loan amounts, not quotes. Actual rates, point costs and terms vary. Not a commitment to lend.
Mike Belfor, Branch Manager and Mortgage Loan Originator, American Pacific Mortgage, NMLS 264700 (Company NMLS 1850). Equal Housing Opportunity. Updated September 18, 2026.
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