Free Tool — MLO / NMLS Exam Prep
Discount Points & Buydown Calculator
Two things every NMLS candidate has to keep straight: discount points, which pay to permanently lower the note rate (1 point = 1% of the loan), and a temporary buydown (2-1 or 3-2-1), which subsidizes the payment for the first one to three years without changing the note rate. This tool computes the cost of both.
Discount Points & Buydown Calculator
Permanent rate buydown (discount points) and temporary 3-2-1 / 2-1 buydowns — both tested on the NMLS SAFE Act exam.
Points% × Loan Amount
Points × cut-per-point (rule of thumb)
1 discount point = 1% of the loan amount (not the purchase price). The ~0.25% rate cut per point is an NMLS exam rule of thumb, not a lender guarantee — actual buydowns vary by pricing.
For exam practice and estimation only — not a substitute for engineered design, manufacturer data, current codes, or a licensed professional's judgment. Verify all values before relying on them.
Worked Example
A borrower takes a $320,000 loan and pays 2 discount points.
- • Cost of points = $320,000 × (2 ÷ 100) = $6,400 paid at closing.
- • If those 2 points drop the rate enough to save $85/month, break-even = $6,400 ÷ $85 ≈ 76 months (about 6.3 years).
- • Now compare a 2-1 buydown on the same loan: the payment is calculated at a rate 2% lower in year 1 and 1% lower in year 2. The total of those first-two-years savings is funded up front into a subsidy account — the note rate never changes, and in year 3 the payment steps up to the full note-rate amount.
Exam takeaway: points quote against the loan amount and lower the rate permanently; a buydown is a temporary payment subsidy. Don't confuse the two.
Discount Points & Buydowns — Frequently Asked Questions
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Under RESPA servicing rules, the transferor servicer generally must notify the borrower of a servicing transfer at least how many days before the effective date of transfer?
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