Should You Buy Down Points on Your Home Loan? A Montana Builder’s Take

When you’re financing a new home in Montana, one of the biggest questions that comes up is how to handle today’s higher interest rates. Many buyers have heard about “buying down points” or “paying points” on a mortgage, a strategy that can lower your interest rate and monthly payment.

But is it actually worth it? At JCH Construction and Development Inc., we’ve walked clients through countless financing scenarios for custom homes around Helena and the valley. Here’s what you should know about how mortgage points work, what they cost, and when buying them makes sense.

What Are Mortgage Points?

Mortgage points, sometimes called discount points, are upfront fees you pay to your lender at closing in exchange for a lower interest rate on your home loan.

Typically, one point costs 1 percent of your loan amount and reduces your rate by about 0.25 percent, although the exact rate change depends on your lender.

For example, if you’re borrowing $500,000 for a custom home in Helena:

1 point equals $5,000 in upfront cost.

Your rate might drop from 6.5% to 6.25%, saving you money on monthly payments.

The question is whether those savings are large enough over time to make the upfront expense worthwhile.

How Buying Down Points Works

Think of buying points as prepaying part of your interest. You pay a larger amount upfront to get a lower rate for the life of the loan.

In general, the longer you plan to stay in your home, the more buying points makes sense. The key factor is your break-even point, which is the time it takes for your monthly savings to equal the upfront cost.

Let’s look at a quick example.

Example:

Loan amount: $500,000

Rate without points: 6.5%

Rate with 1 point: 6.25%

Monthly payment savings: about $80 per month

Cost of 1 point: $5,000

It would take about 5 years to break even. After that, every month’s savings is pure benefit.

If you plan to sell or refinance before that, buying points probably doesn’t make financial sense.

Temporary vs. Permanent Rate Buydowns

There are two main types of buydowns.

1. Permanent Buydown

You pay upfront to permanently lower your interest rate for the life of the loan. This is most common when homeowners expect to stay in the home long term.

2. Temporary Buydown

This is sometimes offered by lenders or builders and reduces your interest rate for the first one to three years only. For example, a 2-1 Buydown means your rate is 2 percent lower in the first year and 1 percent lower in the second year. After that, it returns to the original rate.

This option is often used to make payments easier during the first few years of ownership, especially if you’re building and want more breathing room as you settle in.

When Buying Down Points Makes Sense

From a Montana builder’s perspective, here’s when buying down points is often a smart move.

You plan to keep your home long term. If you’re building your forever home and plan to stay for 10 to 20 years, the savings can be substantial.

You have cash available at closing. If you have extra funds from a down payment, sale of another property, or savings, using some to lower your interest rate can yield better long-term returns.

Rates are higher than normal. In markets like 2025, where rates have been elevated, a small reduction can make a noticeable difference in affordability.

When It Might Not Be Worth It

Buying points isn’t the right choice for everyone. You may want to skip it if:

You plan to move or refinance within a few years. You won’t have enough time to recover the upfront cost.

You need your cash for other expenses. Building in Montana often comes with extra site work, utility, or design costs. Keeping cash available can be more valuable than a slightly lower rate.

Your builder is offering other incentives. Sometimes builders or lenders offer temporary rate buydowns or closing cost credits that make more financial sense.

Builder’s Advice: Think Long Term

When we help clients design and build custom homes around Helena, we always encourage looking beyond the short term. A mortgage decision should fit your entire financial plan, not just your first year’s payment.

If you’re planning to stay in your new Montana home for the long haul, buying down your rate can be one of the best moves you make. But if you expect to upgrade, refinance, or move within a few years, you’re likely better off keeping that money in your pocket for future flexibility.

Final Thoughts

Buying down points can be a smart way to lower your mortgage rate, but it’s not a one-size-fits-all solution. The key is understanding your timeline, break-even point, and overall goals before deciding.

At JCH Construction and Development Inc., we guide clients through these choices as part of our pre-build process, making sure your financing, design, and long-term goals all work together from the start.

Contact us for a free pre-build consultation. We’ll walk you through realistic cost expectations, site requirements, and design options tailored to your property.