Are you hearing about “buying points” from lenders or seeing seller credits advertised on Studio City listings and wondering if it is worth it? With higher home prices in this part of Los Angeles, even a small rate change can move your monthly payment by hundreds of dollars. The key is knowing when points pay off and when your cash is better used elsewhere. In this guide, you will learn what mortgage points are, how to run a simple break-even test, and how Studio City buyers can use seller concessions and buy-downs to their advantage. Let’s dive in.
Mortgage points basics
Mortgage points are an upfront fee you can pay at closing to lower your interest rate. One point costs 1 percent of your loan amount. For example, one point on an $800,000 loan is $8,000. The rate reduction depends on the lender and the day’s pricing.
There are two common categories of points. Discount points reduce your interest rate and can be permanent for the life of the loan. Origination points or fees are lender charges that do not lower your rate. Ask your lender to show both lines clearly so you know what you are paying for.
How much does a point lower the rate
A common rule of thumb is that one discount point lowers your rate by about 0.25 percentage points. In real pricing, the effect can range from roughly 0.125 percent to 0.375 percent per point. Always have your lender quote the exact tradeoff for your loan program and lock period.
Temporary vs permanent buy-downs
A permanent buy-down is just a discount point that lowers your note rate for the full term. A temporary buy-down, such as a 2-1, reduces your payment only in the first years. In a 2-1 structure, your rate is 2 points lower in year 1 and 1 point lower in year 2, then it returns to the original note rate.
Temporary buy-downs are often funded by the seller or builder as a concession. They can ease your first two years of payments but do not reduce long-term interest costs unless there is also a permanent rate reduction.
How points change payments
Points trade upfront cash for smaller monthly payments. To see if it makes sense, use a simple break-even test. If the monthly savings are large enough and you expect to keep the loan long enough, buying points can be a smart move.
Break-even months = Cost of points ÷ Monthly payment savings.
Because both the cost of points and the savings scale with loan size, the break-even timeline for a given rate drop is roughly similar across loan amounts. What matters most is how much the point actually lowers your rate and how long you plan to keep the loan.
Quick math you can copy
- Cost of points = loan amount × points percent (1 point = 0.01)
- Monthly savings = payment at original rate − payment at reduced rate
- Break-even months = cost of points ÷ monthly savings
Worked example: $800,000 loan
Assume a 30-year fixed loan. Without points the rate is 6.50 percent and the principal and interest payment is about $5,056. If you buy 1 point for $8,000 and the rate drops to 6.25 percent, the payment falls to about $4,920. Your monthly savings are about $136.
Break-even equals $8,000 divided by $136, which is roughly 59 months, or about 4.9 years. If you expect to keep the loan at least five years, the point may pay off. If you will sell or refinance sooner, it likely will not.
Sensitivity to the rate drop
- If 1 point only lowers your rate by 0.125 percent, break-even roughly doubles to about 10 years.
- If 1 point lowers your rate by 0.375 percent, break-even roughly halves to about 2.5 years.
This is why it is important to get the lender’s exact quote for how much each point changes your rate and payment.
Temporary 2-1 buy-down example
In a 2-1, the seller funds an escrow account that subsidizes your payment in year 1 and year 2. Your note rate does not change. This can help with early cash flow or qualifying, but it does not reduce total interest over the life of the loan unless you also receive a permanent rate reduction.
Studio City cash-to-close context
Closing costs for buyers commonly land in the range of about 2 to 5 percent of the purchase price, excluding your down payment. Many California buyers often see totals near the lower end of that range for lender, title, and escrow items. Because Studio City prices are higher, the dollar amounts are significant even when the percentages are similar to the rest of the region.
Local transactions can include escrow and title fees, recording charges, and sometimes transfer taxes or special district fees. Who pays what is based on contract terms and local custom. Points add to your cash-to-close because 1 point equals 1 percent of your loan amount, which can be many thousands of dollars on typical Studio City loans.
Seller-paid concessions, including points or temporary buy-downs, are common tools. Program rules set limits on how much a seller can contribute, and those limits vary by loan type and down payment. Your lender should confirm the cap for your specific program before you write an offer.
When points make sense
Points can make sense if you expect to keep your mortgage beyond the break-even timeline and you have the cash available at closing. The longer you keep the loan after break-even, the more you save.
If you expect to sell or refinance within a few years, paying points often is not cost-effective. In that case, you might aim for a no-points rate or negotiate a seller-paid temporary buy-down to ease the first years of payments.
Think about your likely holding period in Los Angeles. Job changes, family needs, or lifestyle shifts can shorten timelines. If your plans are uncertain, focus on flexibility and preserving cash.
Compare lender quotes the right way
Ask each lender for a side-by-side that shows the rate with zero points, with 1 point, and with 2 points, if available. Then use the break-even test to see what fits your timeline and cash budget. Collect these items for each quote so you can compare apples to apples:
- Note rate
- Discount points shown in dollars and as a percent of the loan
- Origination fees listed separately from discount points
- APR for long-term comparisons
- Total cash to close, including points and prepaids
- Monthly principal and interest, and the estimated total monthly payment with taxes, insurance, mortgage insurance, and HOA if applicable
- Whether points are paid by you or by the seller and whether they are refundable
- Rate lock period and any float-down option
Use APR if you plan to hold the loan for a long time and the quotes are based on comparable assumptions. If you expect to move or refinance within a few years, compare cash to close and monthly payment, then run the break-even. Ask your lender to calculate the exact monthly dollar savings for each point so you are not relying on a generic rule.
Taxes and program rules to know
For many owner-occupied purchase loans, discount points paid by the buyer may be deductible as mortgage interest in the year paid if they meet IRS rules. For refinances, points are usually deducted over the life of the loan. Tax rules are nuanced, so speak with a qualified tax professional about your situation.
Loan programs such as conventional, FHA, and VA set specific limits for seller concessions and spell out how buy-downs are treated in underwriting. These rules change. Confirm the current limits and documentation requirements with your lender before you include concessions in an offer.
How we guide Studio City buyers
You want clear numbers and a smart plan that fits your lifestyle and budget. Our team works with Studio City and Valley buyers to structure offers that use seller credits wisely, coordinate with trusted lenders, and confirm escrow and title fees so there are no surprises at closing. We help you weigh cash-to-close versus monthly savings and negotiate the path that supports your long-term goals.
If you want a tailored break-even review and side-by-side lender comparison for your Studio City target price, reach out. We are here to help you make a confident, informed decision from offer to closing. Connect with Joel Cooper to get started.
FAQs
What are mortgage points for Studio City buyers
- Mortgage points are upfront fees equal to 1 percent of the loan amount that you can pay at closing to lower your interest rate, either permanently or for a set period in a temporary buy-down.
How do I calculate break-even on points
- Divide the cost of points by your monthly payment savings; if the result is 59 months, for example, you need to keep the loan about five years for the point to pay off.
Are discount points tax-deductible on a purchase
- For many owner-occupied home purchases, discount points may be deductible in the year paid if IRS tests are met; consult a tax professional for guidance on your specific return.
What is a 2-1 buy-down versus a point
- A 2-1 temporarily lowers your payment for two years and then resets, while a permanent discount point reduces your note rate for the full loan term.
Can a Studio City seller pay for my points
- Yes, seller-paid concessions for points or temporary buy-downs are common, subject to loan program limits and negotiation; confirm allowable amounts with your lender.
Should I buy points if I plan to refinance soon
- If you expect to refinance or sell before break-even, paying points usually does not pencil; consider a no-points rate or a seller-funded temporary buy-down instead.
How many points can I buy on a loan
- Availability and pricing vary by lender and market; ask for a rate sheet that shows the impact and cost of 0, 1, and 2 points so you can compare options against your timeline.
