Thinking about paying points to lower your rate? If you are buying in Rochester, Springfield, or anywhere in Sangamon County, the choice between discount points, lender credits, and buydowns can change both your monthly payment and your cash at closing. You want a clear, local guide that keeps the math simple and the advice practical. In this article, you will learn how each option works, how to calculate breakeven, and what to ask Springfield-area lenders so you can choose with confidence. Let’s dive in.
Points, credits, and buydowns explained
Discount points are prepaid interest you pay at closing to reduce your mortgage rate. One point equals 1 percent of your loan amount. The exact rate reduction per point varies by lender and market. A common rule of thumb is roughly 0.125 to 0.25 percent off the rate for each point, but you must confirm the tradeoff with a current Loan Estimate.
Lender credits reduce your cash to close by offering a higher interest rate. You bring less money to closing, but your monthly payment and long-term interest cost will be higher than the same loan without the credit.
Buydowns come in two forms. A permanent buydown is simply buying discount points to lower the rate for the life of the loan. A temporary buydown, such as a 2-1 buydown, lowers the rate for an introductory period and then steps up to the permanent note rate. Temporary buydowns are often funded by a seller, builder, or with buyer-paid funds at closing.
APR includes certain finance charges like points and spreads them over the loan term. It helps with comparisons, but it does not replace breakeven math if you expect to sell or refinance before the loan ends.
How points change your payment
Here is a simple example to show how points affect payments. This is an example only. Always use your lender’s current numbers.
- Loan amount: $300,000, 30-year fixed
- Option A: 4.50 percent, no points
- Monthly principal and interest: about $1,520.05
- Option B: 4.25 percent, pay 1 point
- Cost of 1 point: $3,000
- Monthly principal and interest: about $1,476.00
- Estimated monthly savings: about $44.05
In this example, you would save about $44 per month by paying $3,000 up front. Whether that is worth it depends on your breakeven.
Find your breakeven in minutes
Use this quick process to decide if points make sense for you:
- Calculate the cost of points: points percent × loan amount.
- Find the monthly savings: payment at higher rate minus payment at lower rate.
- Months to breakeven: cost of points ÷ monthly savings.
- Years to breakeven: months to breakeven ÷ 12.
Using the example above: $3,000 ÷ $44.05 ≈ 68 months, or about 5.7 years. If you plan to keep the mortgage longer than about 5.7 years, paying that point could be a net win. If you expect to sell or refinance sooner, keeping the cash or taking a lender credit may be smarter.
When buying points makes sense
- You plan to keep the mortgage beyond the breakeven period you just calculated.
- You have the cash for closing after covering down payment, reserves, and other costs.
- You value a lower, predictable monthly payment for the long term.
- The rate reduction per point is meaningful compared with other lenders you have quoted.
When lender credits can be better
- You want to minimize cash to close. Total closing costs often fall around 2 to 5 percent of the purchase price, depending on loan program and local fees.
- You expect to sell or refinance before the point breakeven period.
- You prefer to keep cash on hand for renovations, reserves, or other goals.
Temporary buydowns in our market
A 2-1 buydown typically lowers your rate by about 2 percent in year one and 1 percent in year two, before returning to the permanent note rate. These are common in new construction or situations where a seller or builder offers concessions. They can help with early payment relief or qualifying, as long as the loan program permits them and the funding source is documented.
What to check on your Loan Estimate
- Points and lender credits: confirm the exact rate and dollar tradeoffs in writing.
- Cash to close and monthly payment: compare across at least two Springfield-area lenders.
- APR and total interest over your expected time in the home.
- Seller concessions: ask what your loan program allows and whether points can be paid with those funds.
- Fee types: which costs are fixed third-party items like title and recording versus lender-controlled fees.
- Refunds: whether points are refundable if the loan does not close.
Local closing-cost notes for Sangamon County
- Title insurance and closing services are significant items and are typically handled by title companies or attorneys in Illinois. Ask for a written quote.
- Recording and document fees vary by county. Confirm Sangamon County recording and transfer-related fees with your title company or the appropriate county office.
- Property taxes and escrow settings affect both monthly payments and cash to close at closing through prorations and initial escrow deposits.
- Lenders, brokers, and loan officers in Illinois must be licensed. You can verify licensing through official state and national resources.
Quick compare: points vs credits vs buydown
| Option | What it does | Best if | Watch for |
|---|---|---|---|
| Pay points | You pay more at closing to lower the rate for the life of the loan | You will keep the loan past breakeven and have extra cash | Breakeven timing and lender’s rate-per-point value |
| Lender credits | You bring less to closing by accepting a higher rate | You need to reduce cash to close or expect to move or refinance sooner | Higher long-term interest cost |
| Temporary buydown | You get a lower rate for 1 to 2 years before it steps up | You want near-term payment relief, often with seller or builder help | Payment increases later and program rules apply |
Make the math yours
Rate-per-point and credit structures change often. Run the breakeven using a current Loan Estimate from each lender you are considering. Compare rate reductions, credits, APR, and total cash to close across offers, then match the option to your time horizon and cash needs.
If you want a local second opinion on scenarios for a Rochester or Springfield purchase, reach out to a trusted area lender and bring the checklist above. You can also connect with our team for guidance on how points, credits, or seller concessions might fit your offer strategy.
Ready to explore homes or price your sale? Connect with Melissa Vorreyer for local insight and a clear plan.
FAQs
What are mortgage discount points in Illinois?
- Discount points are prepaid interest you pay at closing to lower your interest rate. One point equals 1 percent of your loan amount, and the rate reduction per point varies by lender and market conditions.
How do I calculate breakeven on points for a $300,000 loan?
- Divide the cost of points by the monthly savings. Example: 1 point costs $3,000 and saves about $44 per month, so breakeven is about 68 months, or 5.7 years.
Can seller credits pay for discount points in Sangamon County?
- Many loan programs allow seller concessions to cover points, but limits and rules vary. Confirm with your lender and ensure the funding is documented on your Loan Estimate and Closing Disclosure.
Are mortgage points tax-deductible for Illinois homebuyers?
- Points on a primary home purchase may be deductible in the year paid if IRS conditions are met, while refinance points are often amortized. Consult a tax advisor for your specific situation.
What is a 2-1 buydown and who should consider it?
- A 2-1 buydown temporarily lowers the rate by about 2 percent in year one and 1 percent in year two before returning to the note rate, and can help buyers seeking short-term payment relief when allowed by the loan program.
