Ownership cost
One credit, three destinations: price reduction, permanent points, or a 2-1 temporary buydown.
Cheapest of the three
Computed
The deal
The terms
A price cut lowers the basis the county assesses.
The lender's actual bid. The curve flattens past two points.
Buydown agreement
Fannie Mae's guide credits unused buydown funds against the payoff — or returns them to whichever party funded the account, depending on the agreement. Ask for that sentence in writing before closing; it is worth thousands on an early refinance.
Price reduction
$2,457
Loan $357,750
The loan shrinks, and so does the assessment the county just reset to your purchase price.
Permanent points
Cheapest$2,351
5.32 points
5.32 points buy the rate down to 6.405%. Nothing comes back if the loan is refinanced.
2-1 buydown
$2,091
Escrow $8,884
The escrow needs 8884 to fund two years of subsidy. 11116 of the credit is left over and has to go somewhere.
The 2-1 buydown, inside out
Back to the note rate
The rate curve is not linear. The first two points are worth about 25 basis points each; after that the lender buys less per point, so the engine discounts deeper buydowns rather than pretending 5.3 points buys a rate nobody would quote.
A 2-1 plan is a subsidy on the payment, not on the note. The note rate is unchanged, which is why the payment snaps back in year three whether or not the household is ready.
The credit is larger than the plan needs. $11,116 has to go somewhere — a partial permanent buy-down, a slightly larger 3-2, or back into the price.
Net cost is cash over the hold plus property tax, less any credit that survives a payoff.
Reducing the price lowers the loan and the assessment the county resets to your purchase price. Points lower the rate and nothing else, and a temporary buydown lowers neither after year two. The tax row is why the price cut often wins on a five-year hold even when its monthly payment looks worse.
The first two points usually buy about 25 basis points each. Deeper buydowns buy less per point, so a $20,000 credit on a $375,000 loan does not purchase the rate a straight-line calculation suggests. The engine caps the curve and lets you enter the lender’s real bid.
Points are spent. A 2-1 buydown parks cash in a custodial account, and Fannie Mae’s guide credits what is left against the payoff. It may instead return it to the funding party, depending on the agreement. The toggle exists because the agreement decides, and it is worth reading before you sign.
path A: loan = (price − credit) × (1 − down)
path B: points = credit / loan × 100, rate = note − reduction(points)
path C: escrow = 12 × subsidy(2%) + 12 × subsidy(1%)
payoff credit = unused subsidy at the exit month
Points-to-rate pricing is set by the lender on the day. The curve here is a shape, not a quote: enter the basis points per point you were actually offered and the comparison becomes specific to your file.